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PRINCIPLES 

OF ECONOMICS 



DAY & DAVIS 




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COPYRIGHT DEPOSIT. 





QUESTIONS ON THE PRINCIPLES 
OF ECONOMICS 



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THE MACMILLAN COMPANY 

NEW YORK • BOSTON ■ CHICAGO • DALLAS 
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MACMILLAN & CO., Limited 

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TORONTO 



QUESTIONS 

ON THE PRINCIPLES OF 

ECONOMICS 



BY 
EDMUND EZRA DAY, Ph.D. 

ASSISTANT PROFESSOR OF ECONOMICS, HARVARD UNIVERSITY 
AND 

JOSEPH STANCLIFFE DAVIS, Ph.D. 

INSTRUCTOR IN ECONOMICS, HARVARD UNIVERSITY 



THE MACMILLAN COMPANY 
1915 

All rights reserved 



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Copyright, 1915, 
By THE MACMILLAN COMPANY. 



Set up and electrotyped. Published September, 1915. 



Norfoooti JUregB 

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Norwood, Mass., U.S.A. 



SEP 23 1915 

©CI.A411649 



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PREFACE 

Mastery of the principles of Economics demands more than 
a reading of text-books and supplementary selections. It calls 
for frequent and thoughtful consideration of problems, concrete 
and abstract, by which conceptions may be clarified, truths 
driven home, fallacies laid bare, and powers of analysis and 
discrimination developed. To furnish material for such disci- 
pline is the general design of this collection of questions. 

More specifically, such a collection in the hands of students 
in an introductory course in Economics may serve four main 
purposes : 

(i) Most obviously, the questions may stimulate the student's 
interest. Assigned in conjunction with portions of a text-book 
or collateral reading, they may tempt the student to relate for 
himself the abstract analysis to concrete conditions and events 
which he may observe, and find for a general argument its 
everyday, near-at-hand applications. 

(2) Secondly, such questions may aid in giving the beginner 
his points of compass in a first journey through a somewhat 
intricate subject. Thus he may more speedily acquire a sense 
of direction and proportion, a true perspective, which is easily 
missed in making the usual swift reconnaissance of the field 
of Economics. 

(3) In the third place, the questions may serve to prepare the 
way for more pointed and effective classroom discussion. By 
making the student's thinking less extemporaneous and hap- 
hazard, they may strengthen and deepen the analysis of more 
difficult points, and furnish a helpful plan for ordering and 
mastering the significant details of the simpler material. The 
authors believe this can be done without emasculating the test 



vi PREFACE 

of oral or written quizzes, and without weakening the student 
by furnishing unnecessary props. 

(4) Finally, by suggesting possible differences of opinion, the 
problems may arouse a questioning, combative mental attitude 
which conduces to independent thinking — an exercise whose 
satisfactions few sophomores appreciate ; and by implying the 
shallowness or fallaciousness of certain commonly accepted 
catchwords or doctrines, they may promote an invaluable alert- 
ness of mind and encourage the student to lay a few bricks in 
a new intellectual structure of his own. 

The book is arranged particularly for use with Professor 
Taussig's "Principles of Economics" (revised edition, 1915). 
Accordingly, the questions cover the general range of subject 
matter and are arranged and numbered in the sequence of that 
work, — e.g., question 27. 2 is the second question on Chapter 
27. Similar collections already published contain a vast amount 
of excellent problem material, but this is in a form difficult for 
the ordinary student to use in connection with a text-book built 
on a different plan. To be most effective as a teaching device 
and as an aid to study, such a collection needs to be thoroughly 
accessible and easy to use. It is therefore expected that this 
book will be serviceable chiefly in the hands of students who 
are using Taussig's " Principles " as a text-book, and who will 
go through the questions chapter by chapter as they read the 
text. At the same time, the use of the questions with other 
text-books is not precluded, inasmuch as they are grouped under 
more or less traditional topics and are not commonly couched 
in phraseology peculiar to Taussig. Furthermore, many of the 
questions are far from being simple and elementary, and may 
profitably be considered by more advanced students, especially 
by those who have not had the advantage of a thorough in- 
troductory course. Indeed, in using the book in elementary 
courses, instructors will ordinarily find it advisable to " star " 
for omission certain questions on nearly every chapter, in order 
to limit the student's burden to "what the traffic will bear." 
The authors have refrained from making this selection in ad- 



PREFACE vii 

vance, believing that it may best be done with special reference 
to local needs. 

A few of the questions here presented are frankly borrowed 
from previously published collections ; and in such cases, except 
where the appropriation has been unconscious or accidental, 
credit has been given by appropriate initials. Acknowledgments 
are here made for adaptations or quotations of questions from 
F. A. Fetter's " Principles of Economics " (Fet.) ; I. Fisher's 
" Suggested Problems for Teachers " (F.) ; S. Newcomb's " Prin- 
ciples of Political Economy " (N.) ; W. G. Sumner's " Problems 
of Political Economy " (S.) ; F. M. Taylor's " Principles of Eco- 
nomics " (T.); and the University of Chicago " Outlines of 
Economics " (O.). More of the questions have been drawn 
from a stock accumulated through several years in the hands 
of the instructing staff of the introductory course in Economics 
at Harvard University. Most of the question material, however, 
has been drafted by the authors during the past year with the 
specific purpose of the present book in mind. Even for this 
part no thoroughgoing originality can be claimed, so pervasive 
is the influence of the thoughts and phrases of others. But it 
is hoped that sufficient freshness of form and substance may be 
observable to justify the pretension of authorship. 

EDMUND E. DAY, 
JOSEPH S. DAVIS. 

Cambridge, Mass., 
August 7, 1915. 



QUESTIONS ON THE PRINCIPLES 
OF ECONOMICS 

WEALTH AND LABOR 

1. 1. Which of the following are economic goods : a Victor 
record; the moon; opium; the sunken Titanic; an athletic 
field; New York harbor; Caruso's voice; a five-dollar gold 
piece; a five-dollar bill; a mortgage; the registered trade 
name "Uneeda"; electricity; a primeval forest; a band 
concert; a glass eye; eyesight; weeds; land at the South 
Pole; friendship; labor? 

Define "economic goods." 

1. 2. Which of the following are public goods: Hudson 
River; the Panama Canal; Yellowstone Park; a city water 
system ; lakes stocked by the government with fish ; a harbor 
improved at government expense; a warship; the Weather 
Bureau service ; a fire department ; the University Museum ? 

Define " public goods." 

1. 3. May a thing be wealth (a) to one person and not 
to another? (b) at one place and not at another? (c) at one 
time and not at another? Illustrate. 

1. 4. "Nothing can be wealth unless the total supply is 
so narrowly limited that every part of it is necessary to satisfy 
existing wants." 

Can you think of any exceptions? How, if at all, should 
you restate the point ? 

1. 5. Did the Emancipation Proclamation diminish the 
amount of wealth in the Southern States? 

B I 



2 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

1. 6. "Labor employed in the productive work of in- 
dustry is usually excluded from the category of national 
'wealth.' .... But there is no sufficient reason for its ex- 
clusion. Any increase of the efficiency of labor of a nation 
is evidently as much an increase of its total vendible resources 
as an increase in its instrumental capital would be." 

Do you agree ? 

1. 7. Most goods after being sold to consumers can be 
resold only at a lower price; they are "second hand." Does 
the fall in selling value indicate a decline in the wealth of the 
community ? 

1. 8. "The more things in the nature of wealth a com- 
munity has, the less prosperous it is." Do you agree? Why 
or why not ? 

1. 9. Which of the following are labor : exercise to reduce 
one's weight ; golf-playing ; coaching a football team ; serving 
as a bank director; serving on an unpaid government com- 
mission ; painting for love of the art ; military service ? 

Define "labor." 

1.10. Is the irksomeness of labor inevitable ? How, if at 
all, may it be minimized ? 



PRODUCTIVE AND UNPRODUCTIVE LABOR 

2. 1. "Insurance is not production." Do you agree? If 
not, what product does an insurance company produce? a 
railroad company? 

2. 2. Can there be production without the application of 
labor? Cite instances, if possible. Define "production." 

2. 3. Are the following productive laborers : a contractor 
razing a building; a ticket speculator; a policeman on duty 
at an amateur baseball game; a grocer; a commission mer- 
chant; a bar-tender; a professor of fine arts; an examina- 
tion proctor; a bond salesman; a publisher of sensational 
falsehoods ; an agitator for Socialism ; the admiral of a battle- 
ship fleet ; the warden of a prison ; a lawyer who successfully 
defends a guilty person ; a smuggler of diamonds ; a smuggler 
of Chinese coolies; a politician campaigning for high office; 
the writer of an advertisement for a harmless patent medicine ? 

Define "productive labor." 

2. 4. When a millionaire purchases an up-to-date factory 
building which stands opposite his house and razes it in order 
to improve his view, is his action productive ? 

2. 5. "Some years ago a paper manufacturer near New 
Haven was offered a round sum if he would close his mill. 
This he did, to the benefit of both himself and his former rivals." 
Was his action productive ? 

2. 6. "Economic productivity is not a matter of piety or 
merit or deserving, but only of commanding a price. . . . 
The test of economic productivity in a competitive society is 
the fact of present gain, irrespective of any ethical criteria." 

Do you agree? 

2. 7. Is all productive labor honorable? legal? Is all 
unproductive labor dishonorable? illegal? Illustrate and give 
reasoning. 

3 



THE DIVISION OF LABOR AND THE DEVELOP- 
MENT OF MODERN INDUSTRY 

3. 1. What are the various forms of the division of labor? 
What are the advantages of each ? 

What disadvantages have resulted from the division of 
labor? How, if at all, may these be reduced or eliminated? 

3. 2. What was the Industrial Revolution? When did it 
begin? Is it a thing of the past? How has it affected the 
division of labor ? 

3. 3. Would the Industrial Revolution have taken place 
if transportation facilities had remained unimproved? In 
what way were improvements in transportation stimulated by 
developments in the industrial arts? 

3. 4. Division of labor has been described as " unconscious 
cooperation" and as "specialization." Are these descriptions 
accurate ? Which seems to you preferable ? 

3. 5. Should you expect a high development of the division 
of labor in (a) truck farming ? (b) the manufacture of jewelry ? 
(c) automobile repairing ? (d) carpentering ? (e) interior deco- 
rating? In each case give reasons. 

3. 6. "The division of labor is limited by the extent of 
the market." Explain with reference both to the geographical 
division of labor and to the division of labor among individuals. 

What other factors may limit the division of labor in any 
industry ? 

3. 7. What sorts of gain result from the geographical divi- 
sion of labor? Are there analogous gains in the division of 
labor among individuals? 



LARGE-SCALE PRODUCTION 

4. 1. Which advantages of, and which limitations upon 
large-scale production appear most prominently in (a) the 
iron and steel manufacture ? (b) retail trading ? (c) dairy farm- 
ing? (d) job printing? (e) watch manufacturing? 

4. 2. How do you account for the appearance of widely 
different scales of production (a) in different industries? 
(b) within a single industry? Give examples. 

4. 3. What are the limitations upon large-scale production 
in agriculture ? in manufacturing ? 

Should you expect the scale of manufacture to be affected 
by a large increase of graduates from schools of business ad- 
ministration? Should you expect the scale of agriculture to 
be affected by a large increase of graduates from agricultural 
colleges ? 

4. 4. Does large-scale production entail disadvantages for 
(a) employers? (b) laborers? (c) consumers? (d) society at large? 

4. 5. What are the two forms of large scale management ? 
Illustrate each. What forces tend permanently to establish 
each form? 

4. 6. Give three possible advantages of combination as 
distinct from large-scale production. Does large-scale man- 
agement necessarily involve large-scale production ? 

4. 7. Do both horizontal and vertical combinations appear 
in the restaurant business in this vicinity? What forces pro- 
mote combination in this business? Why is competition able 
to persist? 

4. 8. What motives lead most strongly to horizontal com- 
bination? to vertical combination? 

To which form of combination is the tendency the stronger ? 
Why? 

7 



CAPITAL 

5. 1. Are the following capital: a dog; a wheat field; 
flour ; a workman's lunch ; a jail ; a fountain pen ; a rail- 
road bond ; a railroad ticket ; an opera singer's talent ; coal 
in a locomotive tender ; a five-dollar gold piece ; a street rail- 
way franchise ; business goodwill ; a college dormitory ? 

5. 2. "The difference between producer's and consumer's 
goods is at bottom only a difference of degree." Explain. 
What is the essential difference between them? What two- 
fold relation does capital bear to consumer's wealth ? 

5. 3. "The distinction . . . between Capital and Not- 
Capital, does not lie in the kind of commodities, but in the 
mind of the capitalist — in his will to employ them for one 
purpose rather than another. ..." 

Do you agree ? 

5. 4. "Is it your opinion that the knowledge and skill in 
production which a man may acquire by long practice and 
study should be regarded as part of his capital? Compare 
the cases of two men, one of whom has saved his wages to be 
invested in bonds, while the other has employed his in educating 
himself so as to command higher wages." (N.) 

5. 5. Draw up a list of the important forms which capital 
takes. 

5. 6. What is meant by " saving " ? Is capital ever formed 
without saving? Does all saving result in the formation of 
capital ? Does all investment ? If possible, give examples. 

5. 7. "The savings of the people of the United States are 
nearly a billion dollars a year. What and where are they?" 
(Fet.) 

6. 8. "It is . . . the genesis of new capital that requires 
abstinence. The maintenance of it, the mere renewal of the 

9 



IO QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

wasting tissue of it, does not. . . . The keeping up of the 
series of capital goods is, in a sense, automatic. The mill, the 
ship, etc., virtually replace themselves as they are worn out." 

Do you agree ? 

5. 9. "Through long periods of saving the capital in the 
community has been so greatly increased that there is no longer 
any need for individual saving. . . . Hence, the hard-fisted 
man is not in demand, but rather the man who will consume 
and enjoy. It is no longer necessary that a man abstain in 
order to save. The modern community as a cooperative group 
is producing enough for all." 

Do you agree ? 

5. 10. To what extent and in what manner do the follow- 
ing contribute to the formation of capital : a miser ; a postal 
savings bank ; a life insurance company ; government borrow- 
ing ; a manual training school teacher ; a college professor ? 

5. 11. What obstacles hindered the creation of capital in 
primitive times ? What obstacles to-day impede the growth of 
capital in Mexico ? in the United States ? 

5. 12. "Capital is produced." "Capital is saved." Can 
these two statements be harmonized ? 

5. 13. Why should wages paid to subway laborers be 
called "advances"? Are all wages "advances" in the same 
sense ? 

5. 14. Capital has been variously characterized by econo- 
mists as (a) " inchoate wealth " ; (b) " congealed labor " ; (c) "in- 
termediate goods"; (d) "produced means of production"; 
(e) "future goods." In what sense is each an apt description? 
Which is preferable ? 

5. 15. What distinction has been drawn (a) between 
"capital to the individual" and "capital to the community"? 
(b) between "capital" and "capital goods"? 

5. 16. In what terms may the quantity of capital be 
measured ? 



THE CORPORATE ORGANIZATION OF INDUSTRY 

6. 1. Should you expect corporations or partnerships to 
be the more common in (a) retailing bonds? (b) truck farm- 
ing? (c) gold mining? (d) the manufacture of explosives? 
(e) automobile repairing? (/) preparatory school education? 
(g) ship building? (h) aerial navigation? (i) insurance? 

6. 2. A corporation, formed with capital stock of $10,000, 
is forced to dissolve. Its outstanding debts are $15,000. How 
much will be lost (a) by the creditors, (b) by the stockholders, 
if the assets yield $10,000? $15,000? $20,000? $30,000? 

6. 3. Enumerate the distinctive characteristics of the cor- 
poration. Which seem to you most important and why ? 

6. 4. Do you see any causal connection between the great 
increase of corporations and the Industrial Revolution in its 
later stages? 

6. 5. In what respects is the wide extension of the cor- 
porate organization of industry advantageous, in what respects 
disadvantageous, for (a) the business man? (b) the investor? 
(c) the community at large ? 

6. 6. Should you favor a tax, at the rate of 1 per cent of 
the market value, on all transfers of corporation securities ? 

6. 7. Who are the financial middlemen of this vicinity? 
of New York City? What part do they play (a) in the forma- 
tion of capital ? (b) in the management of corporations ? 

6. 8. How has the corporate organization of industry 
made (a) savings more "liquid"? (b) financial middlemen 
more powerful? (c) the leisure class more permanent? 



ii 



SOME CAUSES AFFECTING PRODUCTIVENESS 

7. 1. "In the building of a new town in Maine it was 
found to be economical to spend considerable sums of money 
for supplying food for the men at less than cost, rather than 
to have them eat the food provided by the local boarding- 
houses." 

Explain. 

7. 2. Under what conditions would an increase of wages 
cause a prompt increase in the efficiency of the wage earners? 
Assuming an increase of efficiency possible by such means, 
should you expect employers to raise the wages? 

7. 3. "The curse of the poor is their poverty." What 
are the economic grounds for this statement? 

7. 4. What should you consider the "necessaries for effi- 
ciency" for a pick-and-shovel worker? a bookkeeper? a motor- 
man? an artist? a foundry hand? the president of a large rail- 
road company? 

7. 5. Is it desirable that wages should always be sufficient 
to provide the "necessaries for efficiency"? no more than 
sufficient ? 

7. 6. In what way is the productiveness of labor affected 
by (a) a wide diffusion of elementary education? (b) extensive 
opportunities for technical education ? (c) extensive facilities for 
higher education? 

7. 7. Under what conditions, if any, might an effective 
increase in educational facilities lower wages (a) for certain 
individuals ? (b) in general ? 

7. 8. "The business men sit by and merely levy toll." 
Criticize. 

7. 9. How is industrial leadership affected by (a) the 

13 



14 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

diffusion of education? (b) freedom of opportunity? (c) in- 
equality of possessions? (d) immaterial rewards? 

7. 10. Concisely describe the economically important ele- 
ments in the immaterial equipment of the United States. What 
is essential to the maintenance of this equipment ? its increase ? 



EXCHANGE, VALUE, PRICE 

8. 1. " Internal commerce does not increase the wealth 
of a nation since it only transfers goods from one person to 
another." (T.) Do you agree? 

8. 2. In what sense is the term " value " used in the fol- 
lowing statements? 

(a) " Whisky is of no permanent value to society." 

(b) "We offer the biggest values in the city." 

(c) "The book cost me two dollars, but that does not 
measure its value." 

(d) "The floods caused a tremendous destruction of 
values." 

(e) "The value of a silver dollar is really only forty 
cents." 

(/*) "Prices of railway and industrial stocks may still be 
below values." 

8. 3. "Any commodity in general use will serve passably 
as a medium of exchange." Can you think of any commodi- 
ties now in general use in this community of which the state- 
ment is not true? 

What commodities other than gold and silver might serve 
satisfactorily as mediums of exchange ? 

8. 4. How should you determine the value of an ounce of 
gold? your overcoat? a railroad terminal? a court house? a 
college stadium? a book prized for sentimental reasons? 

8. 5. A general rise in prices takes place. What does 
this indicate as to (a) the price of potatoes? (b) the value of 
money ? (c) a general rise in values ? 

15 



1 6 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 
8. 6. Suppose the following course of prices : 



1873 



[895 



1912 



Silver per ounce 

Wheat per bushel 

Relative height of prices in general 



$1.30 
1.32 
100 



$0.65 
.67 
60 



$0.61 
1. 10 

85 



What changes, if any, would be indicated in the values of silver 
and wheat (a) from 1873 to 1895? (b) from 1895 to 1912? 



VALUE AND UTILITY 

9. 1. Can you think of anything possessing value but not 
utility ? utility but not value ? both utility and value but having 
no price ? 

9. 2. If the supply of an article is increased, how is the 
value per unit ordinarily affected? Why? Does the value 
of the total stock rise or fall ? Why ? 

9. 3. Granted that more satisfaction is often derived from 
the second hearing of an opera than from the first, and from 
the fifth olive than from the first, are these cases exceptions 
to the tendency to diminishing utility? 

State the law of diminishing utility. 

9. 4. List some goods in respect to which the point of 
satiety tends to be reached most rapidly (a) in your own case ; 
(b) in the case of society at large. 

Define " point of satiety." 

9. 5. Of what is " consumers' surplus" a surplus? Is it 
shared equally by all consumers? 

Under what circumstances should you expect a large con- 
sumers' surplus? a small? 

What difficulties are encountered in its measurement? 

9. 6. What different meanings may be attached to the 
phrase "the income of a community"? Is all "income" of 
economic significance? 

9. 7. If all men possessed equal property and equal income, 
(a) would changes in the supply of a commodity affect its price 
less or more than at present? (b) would the marginal utility of 
money be the same to all? (c) would all men enjoy the same 
consumers' surplus for each commodity? (d) would human 
happiness be greater or less ? 

c 17 



MARKET VALUE. DEMAND AND SUPPLY 

10. 1. In what sense is the term "market" used in the 
following statements? 

(a) "The division of labor is limited by the extent of the 
market." 

(b) "I am going to market." 

(c) "We should build up our South American market." 

(d) "There was no market for apples." 

(e) "There is a world market for cotton." 
Define "market." 

10. 2. What two interpretations may be given the state- 
ment, "The demand for gasoline has greatly increased"? 
Which interpretation is employed in this chapter? 

Define "demand." 

10. 3. The demand for such goods as building lots, paper, 
salt, and unskilled labor is sometimes called a "composite 
demand." Why? Give other examples. 

10. 4. The demand for such goods as plows, agricultural 
land, motor trucks, and copper is sometimes called a "derived 
demand." Why? Give other examples. 

10. 5. Should you expect the demand for the following to 
be elastic or inelastic: diamonds; salt; pepper; hair cuts; 
ink ; tennis balls ; playing cards ; automobiles ? 

Define (a) "an elastic demand" ; (b) "elasticity of demand." 

10. 6. Should you expect the demand for a commodity 
to be elastic or inelastic (a) if there are many available substi- 
tutes for it ? (jb) if there are many possible uses for it ? (c) if its 
price places it beyond the reach of the masses ? (d) if the desire 
for it is nearly satiated ? (e) if the desire for exactly this com- 
modity is deeply ingrained? 

10. 7. "Are supply and stock on hand the same?" (O.) 

19 



20 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

Does the supply of a commodity include what is possessed by 
consumers? May the supply of a commodity exceed the en- 
tire quantity in existence? 

Define "supply." 

10. 8. Would doubling the supply of all commodities 
affect exchange values? (Fet.) 

10. 9. "I am yet unable to understand how it happens, 
with our export of flour stopped, that the price to local con- 
sumers is still going up." (From a speech made soon after 
the outbreak of the European war.) What explanations can 
you suggest ? 

10. 10. What is meant by the following statements? 

(a) " Value is determined by marginal utility." 

(b) "Value is determined by the equilibrium of demand 
and supply." 

Are the statements consistent? 

10. 11. Indicate the order in which the following demand 
schedules stand with respect to elasticity of demand. Plot 
demand curves corresponding to the schedules. 





Number ob 


Units that would 


be Taken 


Assumed Prices 








Of a 


Of b 


Ofc 


25^ 


IOO 


400 


50 


20 


200 


500 


IOO 


15 


300 


600 


200 


12 


400 


700 


400 


10 


450 


800 


800 


8 


600 


900 


1,600 


6 


800 


1,000 


2,500 


5 


1,200 


1,200 


3,600 


4 


2,000 


1,250 


5,000 


3 


3,000 


1,300 


10,000 


2 


5,000 


1,350 


20,000 


1 


8,000 


1,400 


40,000 



MARKET VALUE. DEMAND AND SUPPLY 21 

10. 12. "If demand is doubled, the supply remaining the 
same, the price is doubled; and if the supply is doubled, the 
demand remaining the same, the price is reduced one half." 
Do you agree ? Illustrate by diagram. 

10. 13. Why does the demand curve usually descend 
toward the right? Does it necessarily so descend? 

What is indicated when the demand curve touches the 
vertical axis? the horizontal axis? 

What is signified by a sharply declining demand curve? 
an almost horizontal demand curve ? 

How should you represent an increased demand? a doubled 
demand ? 

10. 14. Construct a diagram showing the determination of 
the market value of first-edition Shakespeares. 

10. 15. Distinguish market value and normal value. 
Can you determine the normal value by averaging market 
values? Is there a normal value for seasonal goods; perish- 
able goods ; domestic service ; a first folio of Shakespeare ? 

10. 16. In what ways is the demand for capital goods 
dependent upon (a) "the utility of the consumable goods they 
aid in making"? (b) general business conditions? 

10. 17. What forces tend to make retail prices inflexible? 
flexible? How far are retail prices determined by marginal 
utility? 

10. 18. What is meant by a "fair price"? 

10. 19. Under what circumstances may utility to sellers 
affect the price of an article ? 



SPECULATION 

11. 1. What is meant by "dealing in futures"? How does 
it tend to affect (a) the price of wheat for the farmer? (b) the 
profits of the miller? (c) the price of flour to the consumer? 

11. 2. Should you expect the development of cold storage 
to mitigate or to aggravate fluctuations in the prices of perish- 
able foodstuffs ? 

11. 3. Why should there be more speculation (a) in cotton 
than in wool? (b) in corn than in rice (in the United States)? 
(c) in stocks than in bonds ? (d) in copper than in steel ? 

What conditions are most conducive to the development 
of organized speculation in any commodity? 

11. 4. How does organized speculation tend to affect 
(a) the market value, (b) the normal value, of the commodities 
concerned ? 

How does it affect value to the producer? value to the 
consumer ? 

11. 5. "The more speculators, the better for the legitimate 
dealer." Why or why not? 

11. 6. W T hat is the essential difference between the produc- 
tive and the unproductive speculator? Give at least two 
reasons why the activity of the latter is economically undesir- 
able. Why is it not suppressed ? 

11. 7. "A great point has been made of the fact that 
prices have advanced so little [in the wheat market since the 
opening of the war]. ... It is greatly to be hoped that the 
Government will not attempt to do more than modify any 
vicious and extreme fluctuations of price. Should they do so 
they may very easily produce later effects much worse than 
those they seek to avoid." 

In what ways might the prevention of an advance in price 
be objectionable ? 



VALUE UNDER CONSTANT COST 

12. 1. What are the important elements of cost in the 
production of (a) illuminating gas? (b) raw cotton? (c) an- 
thracite coal? (d) fine watches? (e) railway transportation? 
(/) grand opera? 

Should you include in cost (a) the rent of the building and 
site occupied? (b) interest on the bonds of the producing cor- 
poration ? (c) dividends on its common stock ? 

12. 2. Under conditions of constant cost of production 
is the cost per unit the same (a) for all producers at the same 
time? (b) for a single producer at different times? (c) for all 
parts of one producer's output? (d) for outputs of different size 
at a given time ? 

12. 3. Should you expect to find production at constant 
cost in a business in which (a) the output is conditioned by 
fertility of soil? (b) rapid improvement in methods of produc- 
tion is taking place ? 

What conditions of production are essential to constant 
cost? Cite industries in which you think these conditions are 
approximated. 

12. 4. How, if at all, would the doubling of a demand for 
a commodity produced at constant cost affect, in the long run, 
(a) its marginal utility? (b) the quantity exchanged? (c) its 
value per unit? (d) the cost per unit? In what respects 
would the immediate effect be different? 

Illustrate by diagram. 

12. 5. Two commodities produced at constant cost re- 
quire for their production equal amounts of the same raw 
material and equal amounts of the same grade of labor. Would 
their market values be the same ? their normal values ? 

12. 6. What is meant by "free competition"? Draw up 
a list of obstacles to the play of competition. 

25 



VALUE AND VARYING COSTS. DIMINISHING 
RETURNS 

13. 1. "Marginal cost determines value." Explain " mar- 
ginal cost." Under what conditions, if at all, is the statement 
true? 

When costs are different for competing producers, whose 
cost determines the normal value of the product when the 
differences in cost are (a) temporary? (b) permanent? 

13. 2. "A market price at which marginal cost and mar- 
ginal utility do not coincide cannot persist." Explain and 
illustrate by diagram. 

13. 3. How, if at all, would the doubling of the demand 
for a commodity produced at increasing cost affect, in the 
long run, (a) its marginal utility? (b) the quantity exchanged? 
(c) its value per unit ? (d) the marginal cost ? In what respects 
would the immediate effect be different? 

Illustrate by diagram. 

13. 4. "Agricultural land cannot yield increasing returns 
as there is a limit to its productivity. Its returns are hardly 
ever constant as land becomes poorer with each succeeding 
crop and must be fertilized. On the other hand, factories 
usually yield increasing returns due to the invention of new 
processes." This statement involves a mistaken notion of 
increasing, constant, and diminishing returns. Point out the 
errors. 

13. 5. "The price of wheat this year (1900) is lower than 
it was in the year 1800. This surely proves that, during the 
period indicated, the industry of wheat raising was subject to 
the law of increasing rather than that of diminishing returns." 
(T.) Does it? 

27 



28 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 
13. 6. Given: 



Value or Labor and Capital invested 
per Plot of io Acres 


Total Yield in Bushels per Plot 


$ 5 


35 


IO 


80 


IS 


135 


20 


200 


25 


275 


30 


300 


35 


3i5 


40 


320 



At what point does the tendency to diminishing returns appear ? 
If the price of the product were $1 a bushel, how much labor 
and capital could profitably be employed on each acre ? 

13. 7. Concretely, how should you expect the tendency 
to diminishing returns to show itself in (a) dairying? (b) mar- 
ket gardening ? (c) forestry ? (d) copper mining ? (e) the manu- 
facture of locomotives? (/) office buildings? 



VALUE AND INCREASING RETURNS 

14. 1. "Here cost is supposed to be uniform but not con- 
stant, — it becomes less per unit as the number of units in- 
creases." What conditions of cost of production are here 
described? Distinguish the terms "uniform" and "con- 
stant." Explain the statement and illustrate by diagram. 

14. 2. "We have a good example of diminishing costs and 
increasing returns in the case of the Edison Electric Light Co., 
which is yearly reducing the price of its incandescent bulbs." 
Do you agree ? 

14. 3. "While this metal [Tungsten] is almost exclusively 
used in electric lamp filaments and the supply controlled by 
the General Electric Co., under an increased demand price 
would soon go down to a few dollars per pound." How might 
this be ? 

14. 4. "Telephone officials agree that it costs more and 
not less to serve a subscriber in a large town than in a small 
one, even if the number of calls used is the same." Should 
you for this reason consider the telephone business conducted 
under conditions of diminishing returns? What is the unit 
for which cost must be calculated in this business? 

14. 5. Explain "producers' surplus." Under conditions of 
increasing returns is there a producers' surplus? Is there such 
a surplus under conditions of diminishing returns ? 

Illustrate by diagram. 

14. 6. How, if at all, would the doubling of the demand 
for a commodity produced at decreasing cost affect, in the 
long run, (a) its marginal utility ? (b) the quantity exchanged ? 
(c) its value per unit ? (d) the cost per unit ? In what respects 
would the immediate effect be different ? 

Illustrate by diagram. 

29 



30 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

14. 7. Should you class as "external" or "internal" the 
economies secured (a) by Milwaukee brewers from the loca- 
tion of a bottle factory in that city? (b) by a railroad system 
through the operation of a large car repair shop? (c) by a shoe 
manufacturer through the establishment of his factory in 
Lynn? (d) by a large chain of drug stores through the control 
of a German chemical company ? 

14. 8. Enumerate the causes of the tendency toward in- 
creasing returns. 

If internal economies were attained indefinitely, what would 
be the outcome and why? What factors generally prevent 
this outcome? 



MONOPOLY VALUE 

15. 1. Are the following monopolists: (a) the owner of 
a copyright; (b) the owner of the best site on the lake front 
in Chicago ; (c) a corporation manufacturing 80 per cent of 
the steel rails sold in a country; (d) a corporation purchasing 
80 per cent of the steel rails sold in a country ; (e) the United 
States post office ; (/) the sole possessor of the secret of making 
glass flowers ? 

Define " monopoly." 

15. 2. Can a monopolist sell all of a given stock of goods 
for more than the identical stock would bring under competi- 
tive conditions? Why can a monopolist make more profit 
than competing producers ? 

15. 3. Can a monopolist charge what he pleases for his 
product? What determines the precise point at which the 
monopoly price tends to settle? 

15. 4. Is the entire profit of a monopolist " monopoly 
profit"? What is monopoly profit? How does it differ from 
"producers' surplus"? Illustrate by diagram. 

15. 5. In what ways, if at all, is monopoly price affected 
by (a) cost of production per unit? (b) potential competition? 
(c) an elastic demand for the product? (d) the existence of 
satisfactory substitutes for the product? (e) hostile public 
opinion ? 

15. 6. "The Dutch East India Company used to destroy 
part of its spice crop to enhance its profits." What conditions 
were essential to make this policy a good one for the company? 

15. 7. Suppose a monopolized article is produced under 
conditions of constant cost. What price policy will the monopo- 
list adopt if the demand for the article is (a) elastic ? (b) inelastic ? 
Illustrate by diagram. 

3i 



32 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

How, if at all, will the monopolist's policy differ if he pro- 
duces under conditions of diminishing cost? Illustrate by 
diagram. 

15. 8. Given the following conditions of demand and supply : 



Assumed Prices 


Quantity Demanded 


Expenses of Production 


it 


1,000,000 ' 






2 


900,000 






3 


800,000 






4 
5 
6 

7 


700,000 
600,000 
500,000 
400,000 


> 


$10,000 

plus 
2i per unit 


8 


300,000 






9 


200,000 






IO 


100,000 







(a) Draw up a supply schedule, (b) What price would be 
fixed under conditions of competition? (c) What price would 
yield the maximum profits to a monopolist? 

Illustrate by diagram. 

15.9. What is " dumping " ? What induces it? To what 
extent is it dependent upon (a) monopoly conditions ? (b) tariff 
barriers ? 

15. 10. What is the effect of a successful corner in wheat 
on the price of (a) wheat to outside speculators? (b) flour to 
the consumer ? 



JOINT COST AND JOINT DEMAND 

16. 1. In what respects do the following illustrate either 
joint supply or joint demand : general farming ; book publish- 
ing ; ship building ; retailing groceries ; university instruction ; 
automobile manufacture ? 

Cite four examples of joint demand not previously men- 
tioned. 

16. 2. What elements should you consider in calculating 
the cost of transporting by railway (a) sl trainload of hogs? 

(b) a carload of potatoes ? (c) a tub of butter ? 

In what respects would the calculation of cost be simpler 
in shipments by express companies ? 

16. 3. Suppose an increase in the demand for beef hides. 
In what direction and by what means would this tend to affect 
the long-run value of (a) beef hides? (b) the best cuts of beef? 

(c) the poorer cuts of beef ? (d) mutton ? (e) bone fertilizer ? 

16. 4. What determines the value of (a) a group of three 
joint products? (b) the principal product of the group? (c) the 
by-products ? 

How, if at all, would extensive advertising of the by-products 
affect the price of the principal product (a) if competition pre- 
vail? (b) if the production be monopolized? 

16. 5. Suppose a, b, and c are essential to the production 
of x, and the demand for x increases. What determines how 
the prices of a, b, and c individually will be affected (a) imme- 
diately? (b) ultimately? 



33 



THE PRECIOUS METALS. COINAGE 

17. 1. Are the following money: an individual's promis- 
sory note ; an individual's bank check ; a bank loan ; a govern- 
ment bond; a postal money order; postage stamps; a rail- 
road mileage book; a five-dollar bill issued by the Southern 
Confederacy ; an old Roman coin ; a bar of gold ? 

Define " money." 

17. 2. What functions has money? To what extent are 
these well performed by (a) gold ? (b) silver ? (c) copper ? 

17. 3. " Would it be possible to have a standard of value 
which did not serve as a medium of exchange? a medium of 
exchange which did not serve as a standard of value? Can 
you find examples in the currency of this country?" (O.) 

17. 4. "The following were . . . used by the ancient 
Chinese as . . . currency : (a) sea shells ; (b) tortoise shells ; 
(c) skins of beasts ; (d) domestic animals ; (e) pearls and precious 
stones; (/) pieces of cotton and silk cloth; (g) instruments of 
daily use." 

What qualities in each led to its use as money? In what 
respects was each defective ? 

17. 5. Would gold serve as well as money (a) if it had no 
value apart from monetary use? (b) if it had but one tenth of 
its present value ? 

Would gold have as much value if it did not serve as money ? 

17. 6. Distinguish "free coinage" and "gratuitous coin- 
age." 

17. 7. What reasons are assignable for (a) the use of 
alloy in coining ? (b) government monopoly of coinage ? (c) mill- 
ing coins? (d) exacting seigniorage? 

17. 8. How much above, and how much below the mint 
price of gold may its market price be ? What conditions might 

35 



36 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

lead to this variation? What forces would prevent wider 
variation ? 

17. 9. What is a dollar? Should you say "a dollar bill 
is a dollar," or "a dollar bill is worth a dollar"? 

17. 10. If half the world's stock of money were suddenly 
to disappear, how would the following be affected : (a) the price 
level ; (b) the value of gold watches ; (c) the amount of wealth ; 
(d) general prosperity ? 

How do you measure (a) the quantity of money? (b) the 
amount of wealth ? 

17. 11. " What facts go to determine the amount of money 
which a country needs ? " (S.) 



QUANTITY OF MONEY AND PRICES 

18. 1. How, if at all, is the value of money affected by 
(a) a greatly increased demand for gold ornaments? (b) an 
extension of the division of labor? (c) lavish expenditure? 
(d) an increased rapidity of circulation of goods ? (e) the growth 
of mail order houses, e.g. Sears, Roebuck & Co.? (/) a de- 
creased hoarding of specie? 

18. 2. In what ways should you expect a general European 
war to affect the value of money? 

18. 3. If the value of money should decline 50 per cent, 
how would the value of gold jewelry be affected? How would 
its price ? 

18. 4. Has the demand for silver increased in recent years? 
Has the demand for gold ? Has the demand for money ? 

18. 5. How, if at all, does the drain of specie to the East 
affect the value of money in the Orient? in Europe? How do 
you explain any differences observed ? 

18. 6. Washington is reported to have said, in 1797, on 
being told of the discovery of a silver mine, that "it would 
give him real uneasiness, should any silver or gold mines be 
discovered that would tempt considerable capital into the 
prosecution of that object, and that he heartily wished for 
his country that it might contain no mines but such as the 
plow could reach, excepting only coal and iron." 

Do economic considerations justify his view? 

18. 7. "If ten times the labor were given to gold mining 
that is now given, and ten times the gold were thereby got, 
the world would not be better off." Explain. Is gold min- 
ing productive labor ? 

Would your answer be different if gold were used solely 
for monetary purposes? 

37 



38 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

18. 8. "Thoreau thinks 'tis immoral to dig gold in Cali- 
fornia ; immoral to leave creating value, and go to augmenting 
the representative of value, and so altering and diminishing 
real value." (Emerson's Journal, 1854.) How far, if at all, 
should you agree? 



THE COST OF SPECIE IN RELATION TO ITS VALUE 

19. 1. In what particulars is the demand for gold essen- 
tially different from the demand for (a) raw cotton? (b) agri- 
cultural land ? (c) silver ? 

In what particulars are the conditions of supply for gold 
different from those for these same commodities ? 

In what respects is the relation of cost to value different in 
the several cases? 

19. 2. Has gold a normal value? If not, why not? If so, 
what determines it ? 

19. 3. What was the proportionate increase in the stock 
of the precious metals (a) between 1493 and 1660? (b) between 
1850 and 1860? Was the monetary stock equally affected? 
What changes in the price level occurred in the two periods? 
How do you account for the slighter effects in the later period ? 

19. 4. Gold can to-day be profitably extracted from ore 
which was discarded as waste in 1850. Prices to-day are ap- 
proximately 25 per cent higher than in 1850. How do you 
reconcile these facts ? Will a fall in the value of gold inevitably 
drive some mines out of operation? 

19. 5. By what process does the value of gold determine 
what mine shall become the marginal mine ? 

19. 6. Suppose the discovery of a new process which re- 
duces by 50 per cent the cost of taking gold from the ore. By 
how much and by what process will the value of gold be af- 
fected? the extent of gold mining? Is your answer consistent 
with Professor Taussig's conclusions ? 



39 



BIMETALLISM 

20. 1. Does the mint ratio of gold and silver remain 
stable when (a) the market ratio fluctuates? (b) the value of 
the silver in the silver dollar fluctuates? (c) the value of gold 
fluctuates? What determines the mint ratio? 

20. 2. Does the government fix the value of the gold dol- 
lar? the silver dollar? the nickel? 

In what different ways may the government influence the 
value of money? 

20. 3. A country freely coins a gold dollar containing 20 
grains of fine gold and a silver dollar containing 300 grains of 
fine silver, and coins on government account subsidiary silver 
coins containing proportionately one tenth less of fine silver. 
What coins will circulate when the market ratio of gold and 
silver is (a) 16 to 1? (b) 15 to 1? (c) 14 to 1? (d) 13 to 1? In 
each case which metal, if either, is "overvalued"? 

20. 4. Give four historical examples of the working of 
Gresham's law. State the law. 

20. 5. " Money is a product of evolution, a result of the 
ages. The better has gradually crowded the poorer out of 
existence." Can you reconcile this statement with Gresham's 
law? 

20. 6. Why did fractional silver coins in the United States 
tend to disappear after 1850? What measures were taken in 
consequence to regulate this part of the subsidiary coinage? 
Were all of these measures necessary? Under what circum- 
stances, if any, would the difficulty of the fifties recur? 



4i 



BIMETALLISM. THE DISPLACEMENT OF SILVER 

21. 1. "The very existence of the double standard tends 
to bring the relative values of gold and silver toward the ratio 
chosen." Explain, and illustrate from French experience. 

21. 2. In what respects was the bimetallist argument sup- 
ported by the experience of France? the United States? 

21. 3. When and why was free coinage of silver abandoned 
by (a) France? (b) Germany? (c) United States? (d) India? 

21. 4. Is there a fixed coinage ratio for gold and silver in 
the United States? Is gold freely coined? is silver? Is 
gold full legal tender? is silver? Is the monetary standard 
bimetallic ? 

Define "limping standard" and distinguish it from bi- 
metallism. 

21. 5. What is the market value of the silver in a silver 
dollar ? 

Suppose the United States adopted the policy of free coin- 
age of silver at the ratio of 16 to 1. How would this tend to 
affect (a) the make-up of the circulating medium? (b) the 
general price level? (c) the market value of silver? 

21. 6. Would bimetallism be more likely to succeed (a) if 
the coinage ratio chosen were near the existing market ratio? 
(b) in a country which used much metal in its coinage? (c) if 
adopted internationally? (O.) 

21. 7. Would universal bimetallism conduce to a stable 
market ratio between gold and silver? to a stable price level? 
For what reasons does either seem desirable ? 



43 



CHANGES IN PRICES 



22. 1. Wholesale prices in the United States in 1897 and 
1912 were approximately as follows : 



Bacon (per lb.) .... 
Butter (per lb.) .... 
Chairs (per doz.) .... 

Coal (per ton) 

Corn (per bu.) 

Cotton (per lb.) .... 
Hosiery (per doz. pairs) . . 
Sole leather (per lb.) . . . 
Wheat (per bu.) .... 
Woolen dress goods (per yd.) 



1897 



$ .05 



1912 



$ .11 



.18 


.30 


3-50 


6.00 


4.00 


5.00 


•25 


.70 


.07 


.12 


1.85 


1.85 


.20 


.25 


.80 


I.05 


.42 


.66 



Assuming prices of 1897 as base prices, calculate index 
numbers for 1912, using (a) the simple arithmetic mean; (b) the 
median ; (c) the weighted arithmetic mean (supposing the rel- 
ative importance of the different articles to be as follows : 
foods, 10; clothing, 4; house furnishings, 1 ; and fuel, 1). 

What are the special advantages of each of these methods? 

22. 2. When prices are rising how are the following af- 
fected : debtors ; farmers ; factory operatives ; manufacturers ; 
owners of gold mines; bondholders; stockholders; interest 
rates ? 

22. 3. "There is reason to expect . . . that rising prices 
during the next generation will be accompanied by money 
incomes rising still more." Why? 

Who gains and who loses (a) by stationary incomes with 
falling prices? (b) by rising incomes with stationary prices? 

45 



46 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

22. 4. What is the "multiple standard"? For what is it 
a standard? What may be said for and against its adoption? 

22. 5. " Rising prices seem to cause prosperity, falling 
prices adversity." How far, if at all, are the real consequences 
different ? 

22. 6. "Most business men and most financial writers of 
the daily and weekly press are unconsciously inflationists." 
Why is this to be expected? 



GOVERNMENT PAPER MONEY 

23. 1. If inconvertible paper money is issued, what factors 
affect its circulation ? its value ? 

23. 2. Is fiat money necessarily paper money? Is it 
necessarily inconvertible? Is all inconvertible money fiat 
money ? 

23. 3. What constitutes " over-issue" in the case of fiat 
money? Cite historical instances of fiat money in which 
over-issue (a) has occurred, (b) has been avoided. 

23. 4. "The specie premium does not measure real de- 
preciation with accuracy." Explain "specie premium," "real 
depreciation," and the statement. 

23. 5. What are the essential differences between the 
two sorts of convertible government paper money? In what 
respect is the use of either (a) advantageous ? (b) dangerous ? 

23. 6. How far, if at all, may depreciation take place with 
(a) inconvertible paper money? (b) "inconvertible specie"? 
(c) convertible paper money? 

23. 7. What kinds of money circulated in the United States 
in 1800? 1840? 1860? 1870? 1880? 1895? Explain any changes 
noted. 

23. 8. What different forms of currency are now in cir- 
culation in the United States? What practices insure their 
circulation at parity? 

23. 9. Outline (giving dates for the principal events) the 
monetary history of the United States. 



47 



BANKING AND THE MEDIUM OF EXCHANGE 

24. 1. Distinguish between investment banking and com- 
mercial banking. By whom is investment banking conducted 
in the United States? Are the two necessarily conducted by 
separate institutions ? 

24. 2. "A savings bank accepts deposits." "During the 
panic of 1907, deposits in safety vaults greatly increased." 
"The deposits of the First National Bank exceed $10,000,000." 
Of what should you expect the "deposits" to consist in each 
case? 

24. 3. How does a bank "issue" notes? By whom and 
why are they returned? 

24. 4. What expenses are involved in the issue of bank 
notes ? How is revenue secured from such issue ? 

24. 5. What is a promissory note? Describe the process 
of its discount at a commercial bank. In what different forms 
may the proceeds be taken ? 

24. 6. In what two forms may a commercial bank lend its 
credit? Compare the two as to (a) security, (b) velocity of 
circulation, (c) extent of use. 

24. 7. "The leading operations of banks, when analyzed, 
can be resolved into cases of the exchange of rights against 
rights, or of rights against money." Explain the validity of 
this statement in the case of (a) deposits over the bank's coun- 
ter; (b) note issue; (c) the discount of a promissory note; 
(d) the creation of deposits. 

24. 8. Compare the following in respect to probable use of 
deposit currency : (a) the people of the United States and of 
Mexico ; (b) a farming community and Chicago ; (c) wholesale 
and retail purchasers. 

e 49 



50 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

What factors determine the relative importance of deposit 
currency in the circulating medium ? 

24. 9. Briefly describe the process of clearing checks. 
By what process and to what extent does it economize the use 
of money ? 

24. 10. A, B, C, D, and E are banks constituting a clear- 
ing house association. On a given day they present checks 
for clearing as follows : 



Against .... 


A 


B 


c 


D 


E 


By A . . 





$15,250 


$19,400 


$IO,325 


$10,150 


B . . 


$n,i75 





17,900 


7,500 


9,125 


C . . 


20,750 


l8,IOO 





14,075 


12,175 


D . . 


9,250 


8,475 


13,325 





7,IOO 


E . . 


9,325 


7,650 


9,i75 


IO,525 





Find : (a) the total amounts due to and by each bank ; (b) the 
balance due to or by each bank ; (c) the percentage of checks 
settled by offset. In what different ways may the balances 
be settled? 



BANKING OPERATIONS 

25. 1. Arrange the following items in the form of a bank 
statement showing in parallel columns the resources and liabili- 
ties: Real Estate, $30,000; Surplus, $30,000; Deposits, 
$283,000; Loans, $300,000; Cash, $80,000; Undivided Prof- 
its, $12,000 ; Other Assets, $10,000 ; Capital Stock, $100,000 ; 
Bonds and Stocks, $80,000; Circulating Notes, $75,000. 

What items will be affected, and how, by each of the fol- 
lowing operations? 

(a) The bank makes a new loan of $20,000 for two months 
at the discount rate of 6 per cent per annum; proceeds are 
taken one-sixth in specie and the balance in a deposit account. 

(b) New deposits of $10,000 are made over the bank's 
counter, — $2000 in gold and silver, $2000 in notes of other 
banks, $1000 in notes of this bank, $3000 in checks on other 
banks, $2000 in checks drawn on this same bank. 

(c) The bank adds $2000 to its surplus and distributes a 
dividend of 2 per cent ; stockholders take half of the dividend 
in cash and leave half on deposit with the bank. 

(d) Loans of $25,000 mature and are paid, — $5000 in 
specie, $5000 in notes of this bank, and the balance in checks 
drawn against deposits in this bank. 

(e) A "run" occurs against the bank. To strengthen its 
reserve, the bank sells one half its bonds and stocks for cash at 
a sacrifice of 5 per cent. The "run" comes to an end after 
$50,000 of deposits have been withdrawn in money, and $10,000 
in the bank's notes presented for redemption. 

Draw up a statement showing the condition of this bank after 
the series of operations has been completed. 

25. 2. What is a bank reserve? Why should it be main- 
tained? How should you measure the strength of a reserve? 

5i 



52 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

What considerations induce a bank (a) to diminish its reserve? 

(b) to increase it? By what means may a bank increase its 
reserve ? 

25. 3. "It is natural to think of a bank's loans as being 
the children of its deposits. But it is at least as true to think 
of the deposits as being the children of its loans." 

In what sense is each statement accurate ? 

25. 4. What is to be said for and against the combination 
of commercial and investment banking? How extensively 
are the two combined to-day? 

25. 5. What are demand loans? Why do they play so 
important a part in commercial banking? Why do the rates 
on demand loans fluctuate more widely than on time loans? 
Should the use of demand loans be restricted ? 

25. 6. Suppose a large increase in the quantity of specie 
held by the commercial banks. How would this tend to affect 
(a) the rate of bank discount? (b) the volume of deposit cur- 
rency? (c) the value of money (as the commercial world uses 
the phrase)? (d) the value of money (as the economist uses 
the phrase) ? 

25. 7. What part, if any, do commercial banks play in 
(a) the process of investment? (b) the increase of capital? 

(c) the course of industrial development? (d) leadership in 
the business world? In what respects may the influence of 
commercial banks be undesirable ? 



CENTRALIZED BANKING SYSTEMS 

26. 1. For what reasons has government regulation of 
bank note issue been necessary? What are the chief types of 
regulation? How do you account for the difference in type 
prevailing in different countries? 

26. 2. Compare the central banks of France, England, and 
Germany with respect to 

(a) organization and management ; 

(b) branches; 

(c) nature and extent of government control ; 
{d) monopoly of note issue ; 

(e) limitation of note issue ; 
(/*) elasticity of note issue ; 
(g) security for notes issued ; 
(h) deposit business ; 
(i) size and composition of reserve ; 
(/) operations other than deposit and issue ; 
(k) relation to other banks. 

26. 3. What action is taken by the Bank of England when 
a crisis threatens ? 



53 



THE BANKING SYSTEM OF THE UNITED STATES 

27. 1. Describe the national bank system as it stood in 
1913, with respect to (a) note issue ; (b) reserve requirements. 

Wherein had the system proved satisfactory ? 

27. 2. What specific defects in the national bank system 
was the Federal Reserve Act of 1913 designed to remedy? 
What measures were adopted to this end ? 

27. 3. What legal regulations respecting reserves against 
deposits in national banks exist at present? 

To what extent are such provisions found in other countries ? 

To what extent and for what reasons are they desirable? 
unnecessary ? 

27. 4. Describe the organization of a Federal Reserve 
Bank. What are its chief functions? 

27. 5. For what different types of notes is provision made 
under the Federal Reserve Act? What regulations govern the 
issue of each? What is their relative importance? What 
purposes are served by each? 

27. 6. What requirements does the Federal Reserve Act 
establish for reserves of Federal Reserve Banks against (a) their 
deposits ? (b) Federal Reserve Notes ? 

27. 7. Did the establishment of the Federal Reserve Banks 
increase or decrease the legal lending power of the banks in 
the United States ? 

27. 8. What is the Federal Reserve Board, and what are 
its principal powers ? 

27. 9. What are the outstanding characteristics of the 
present banking system of the United States ? 



55 



SOME PROBLEMS OF LEGISLATION ON BANKING 

28. 1. In what respects are bank notes and deposits es- 
sentially alike? different? 

28. 2. Why should special security be accorded to note 
holders? In what forms is this special security provided by 
the various governments ? 

28. 3. By what different requirements may excessive issue 
of bank notes be prevented ? 

28. 4. What may be said for and against the following 
measures for protecting depositors: (a) restricting the kind of 
business the bank may undertake ; (b) limiting loans made to 
particular individuals; (c) frequent government inspection; 
(d) insurance of deposits; (e) legal minimum reserves against 
deposits ? 

28. 5. What is meant by elasticity of currency? Why 
is it desirable that a currency be elastic? What forms of 
currency in the United States are elastic ? 

28. 6. "Deposits are ideally elastic." Explain. Under 
what circumstances might this not be the case? 

28. 7. What are the advantages and disadvantages of 
(a) a centralized note issue? (b) a central bank? Would the 
establishment of a central bank in the United States be 
desirable ? 



57 



CRISES AND INDUSTRIAL DEPRESSIONS 

29. 1. Make a chronological table of industrial crises 
noting the geographical extent of each and the degree of periodic- 
ity apparent. 

29. 2. What are the phases of a typical business cycle? 
Sketch the significant features of each phase. 

29. 3. What have been assigned as fundamental causes of 
industrial crises ? 

29. 4. Why should crises occur most frequently in coun- 
tries industrially most highly developed? 

Should you expect crises to occur more frequently in the 
United States in the future than in the past? to be more 
acute? 

29. 5. In what different ways is the course of the business 
cycle influenced by the temper of the business class ? 

29. 6. Explain the parts played in the course of industrial 
crises and depressions by (a) distributing middlemen ; (b) finan- 
cial middlemen ; (c) the accumulation of fresh savings ; id) ex- 
tensive crop failures; (e) an increasing gold supply; (/) the 
failure of an important industrial incorporation; (g) an ex- 
tension of government interference with the conduct of 
business. 

29. 7. "The period of depression is often a healthy one." 
Wherein? Is the period of expansion often an unhealthy 
one? 



59 



FINANCIAL PANICS 

30. 1. Distinguish the financial panic from the industrial 
crisis. 

Can there be an industrial crisis without a financial panic? 
a financial panic without an industrial crisis? Is the crisis 
more severe if accompanied by a financial panic? 

30. 2. In time of panic is there less money than usual in 
the country ? in the banks ? in circulation ? 

Is there an unusually large demand for money ? 

30. 3. "In times of panic, the only sound policy for banks 
... is to lend freely." Why? Why is this policy difficult to 
pursue ? Is such a policy desirable " when the storm is brewing " ? 

30. 4. What means should be employed to prevent the 
development of an incipient panic when a single bank is beset 
by a run? Are the same means available when distrust of the 
banks becomes general? If not, why not? If so, under what 
conditions ? 

30. 5. What lending policy has been generally pursued 
by banks in the United States (a) when a panic has threatened? 
(b) after a panic has been precipitated ? Why ? 

30.6. Why has an "emergency currency" been needed 
in time of panic in the United States? How has it been pro- 
vided, for what special purpose, and with what success ? 

Will it be similarly needed and provided in the future? 

30. 7. "Panics are bad in themselves, and bad in their after 
effects." Why? Can a similar statement be made as to crises ? 

30. 8. To what extent and by what means can financial 
panics be prevented ? 

30. 9. What are the major evils of the industrial crisis 
and depression? By what means may these evils be alleviated? 
What is the prospect of their entire disappearance ? 

6i 



THE THEORY OF PRICES ONCE MORE 

31. 1. In what forms may credit be extended? 

Under what circumstances does the use of credit dispense 
with the use of money? Under what circumstances does it 
not? 

31. 2. How is the volume of deposits related to (a) the 
volume of transactions? (b) the quantity of money in circula- 
tion ? (c) the amount of reserve money held by the banks ? 

31. 3. How do the following tend to affect the quantity 
of "purchasing power in terms of money": (a) an increase of 
charge accounts; (b) money hoarding; (c) a limited issue of 
convertible government paper money; (d) an increased use of 
deposit accounts in commercial banks; (e) a change in the 
temper of the business community ; (/) the establishment of a 
stock exchange clearing-house; (g) an increased output of 
gold ; (h) an increased output of silver ? 

31.4. How would a decrease in "inactive" deposit ac- 
counts influence the total purchasing power? the price level? 

31. 5. What factors determine the proportion of bank 
deposits and notes to reserve money? 

31. 6. The per capita stock of money in 1910 in various 
countries was estimated as follows : 

France $37.85 

United States 35.21 

Canada 29.05 

British Isles 17-74 

Germany 12.76 

Russia 6.36 

Japan 3.73 

63 



64 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

What, if anything, does this indicate as to (a) the per capita 
wealth? (b) the average of well-being? (c) the habits of the 
population ? 

What factors determine the amount of money per capita ? 

31. 7. By what process, if at all, should you expect the 
following to influence the general price level in the United 
States : (a) advertising ; (b) the growth of the trusts ; (c) in- 
creasing demands of trade-unions; (d) extravagant purchases 
of automobiles ; (e) increased output from South African gold 
mines ; (/) wider use of deposit accounts in France ? 

31. 8. What factors are primarily responsible for the 
great rise in prices in the United States since 1897? 

31. 9. Wherein do modern currency systems fall notably 
short of perfection? 

31. 10. What means have been proposed for stabilizing 
the price level? What obstacles stand in the way of their 
success ? 

31. 11. Define: "money"; "currency"; "cash"; "specie." 



THE FOREIGN EXCHANGES 

32. 1. What is a bill of exchange? By whom and on 
whom is it drawn, and to whom is it payable? 

Illustrate its use in the purchase of £1000 of cotton goods 
from J. B. & Co. of Manchester, England, by U. S. & Co. of 
New York City. 

32. 2. Suppose that a New York importer can get 50 gross 
of Sheffield razors delivered in New York for 44i. each (the 
duty included), and that he can sell them for 95^ each. What 
would be his profit on such a transaction if the rate of exchange 
on London were $4.84? if the rate were $4.87? (T.) 

32. 3. What is meant by "par of exchange"? 

Find the par of exchange (expressed in terms of francs to 
one dollar) between New York and Paris, given the fine gold 
content of the dollar as 23.22 grains and that of the franc as 
4.48 grains. Would a rate of 5.20 indicate a premium or dis- 
count? a tendency toward gold export or import? 

32. 4. What determines how widely the rate of sterling 
exchange may fluctuate? How has the range of fluctuation 
been affected by the general European war? 

32.5. Who are the "dealers" in bills of exchange? Are 
they productive laborers ? 

32. 6. How is the rate of sterling exchange settled at any 
given time ? Would rates be different if there were no " dealers " 
in foreign exchange? What special factors influence the rate 
on "bankers' bills"? on "time bills"? 

32. 7. A New York company sells a large shipment of 
oil to a railroad company in India. How might payment be 
effected through London ? 

32.8. "The flow of specie sets in motion forces which 
f 65 



66 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

sooner or later stop the flow." What are these forces? How 
do they accomplish this result? 

How does a rise in the rate of bank discount in London 
affect the flow of specie? -;...^. 

32. 9. What determines the par of exchange between 
(a) two gold standard countries? (b) a gold standard and a 
silver standard country? (c) a gold standard country and one 
upon a depreciated paper standard ? 

32. 10. In what respects is domestic exchange essentially 
like foreign exchange ? different ? 






THE BALANCE OF INTERNATIONAL PAYMENTS 

33. 1. List the kinds of transactions which give rise to 
payments (a) by persons in the United States to persons in 
England; (b) by persons in England to persons in the United 
States. 

33. 2. How is the rate of sterling exchange in New York 
affected (a) immediately, (b) in the long run, by large purchases 
of American securities by English investors ? 

How is the American balance of trade affected ? 

33. 3. How should you expect the rate of sterling exchange 
in New York to be affected by (a) a financial panic in New 
York City? (b) a failure of the American wheat crop? (c) the 
rapid development of an American merchant marine? (d) a 
great increase in American gold output? (e) increased pur- 
chases of coffee from Brazil? (/) the general European war? 

33. 4. The establishment of a postal savings system in 
the United States is expected to bring about a diminution in 
the remittances made to foreign countries by those who have 
recently immigrated to this country. Would such a change 
be to the advantage of the United States? If so, wherein? 
If not, why not? 

33. 5. "These balance-of-trade reports show . . . that 
we have had no real prosperity in this country for about six 
years. The balance of trade has been against us. As a nation 
we have been spending more than we have been earning. For 
three years in succession we have been paying off this debit 
account by sending abroad an immense amount in gold bullion. 
If we keep that up we will 'go broke.' We must see to it that 
more money comes in than goes out or Uncle Sam will go into 
the hands of a receiver." 

6 7 



68 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

What have you to say regarding these statements and their 
implications ? 

33. 6. "Hundreds of millions of dollars are taken away 
from the United States each year by tourists, by returning 
immigrants, and to pay interest and dividends on our securi- 
ties held abroad. How can a nation, any more than an in- 
dividual, grow rich if it keeps on paying out more money than 
it takes in?" 

Criticize. 

33. 7. Suppose the people of one country to lend, through 
a long period, large sums annually to the people of another 
country. Trace the effects in the lending country, immediate 
and ultimate, on (a) the flow of specie; (b) merchandise im- 
ports and exports ; (c) the price of foreign exchange. 

Should you expect such a lending country to have a "favor- 
able" or an "unfavorable" balance of trade? 



THE THEORY OF INTERNATIONAL TRADE. WHY 
GOODS ARE EXPORTED AND IMPORTED 

34. 1. "A country exports the things which are low in 
price within its borders." Does the United States export 
crushed stone, fresh vegetables, hay, copper? What implica- 
tions are involved in the quoted statement? 

34. 2. What are the principal factors which lead to the 
export of (a) cotton from the United States? (b) cotton goods 
from England? (c) toys from Germany? (d) tea from China? 
(e) agricultural implements from the United States? 

34. 3. Under what circumstances, if any, can a com- 
modity produced with labor paid high money wages be profit- 
ably exported to a country in which the same commodity' is 
produced with labor receiving low money wages? 

34. 4. "We need not fear labor competition with Chris- 
tendom. The readjustment would involve some temporary 
hardship, but it would be only temporary. But to compete 
with the wages paid in India, China, and Japan would be im- 
possible. In some cases American wages would fall; in other 
cases American manufactories would cease. Wages at three 
or four dollars a day could not be long kept up in competition 
with wages at twenty-five, fifty, or even seventy-five cents a 
day. Oriental wages would rise a little; American wages 
would fall a great deal." 

Criticize. 

34. 5. Can a country advantageously import a commodity 
in producing which its labor is more effective than labor is in 
producing that commodity in the country whence it is imported ? 

34. 6. "It appears to me that all labor done directly and 
indirectly in carrying articles to the place of consumption which 
could have been produced in sufficient abundance, with as little 

6 9 



70 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

labor, at the place of consumption as at the place they were 
carried from, is useless labor." — Lincoln's Complete Works, 
i. 92. 

Criticize. 

34. 7. How should you state " the principle of comparative 
cost"? 

34. 8. To what extent, if any, would international trade 
continue if labor were everywhere perfectly mobile ? 

34. 9. Under what conditions may it be profitable to pro- 
duce domestically a part, and to import a part, of a supply of a 
commodity? In what industries is such a division of the field 
most likely to persist ? 



THE THEORY OF INTERNATIONAL TRADE. 
WHEREIN THE GAIN CONSISTS 

35. 1. Do countries participating in international trade 
share equally in its gains? Does a country ever lose by par- 
ticipation in international trade ? 

35. 2. How is the partition of gains from international 
trade affected by (a) the nature of the demand for the articles 
traded? (b) changes in the amount of other payments than 
those for merchandise? (c) the appearance of a new article of 
export ? (d) differences in money incomes ? (e) the effective- 
ness of labor in producing exported commodities? 

35. 3. Show under what conditions the following may be 
true: "We may often, by trading with foreigners, obtain their 
commodities at a smaller expense of labor and capital than 
they cost to the foreigners themselves." (N.) 

35. 4. "International trade is virtually a mode of cheapen- 
ing production." Explain. 

35. 5. Is the United States a country of peculiarly high 
money incomes? of peculiarly high prices? 

In a country of high money incomes, which commodities 
will be at a relatively high price, which at a relatively low price ? 



7i 



PROTECTION AND FREE TRADE. THE CASE FOR 
FREE TRADE 

36. 1. "The internal commerce of the United States is 
the best possible argument for free trade." Explain. 

36. 2. "When we buy manufactured goods abroad, we 
get the goods and the foreigner gets the money. When we 
buy the manufactured goods at home, we get both the goods 
and the money." 

Criticize. 

36. 3. In what manner and through what process does 
the imposition of a protective tariff on manufactures tend to 
affect (a) truck farmers? (b) other farmers? (c) the extent of 
employment ? 

36. 4. "There is no real excuse for buying printing out- 
side of Atlanta. Aside from patriotic motives of loyalty to 
Atlanta's industries, the business men of the city have a narrow 
view of the subject if they think they can gain by sending 
printing orders away. The removal of $500,000 cash each 
year from this city represents an actual loss, because there is 
no exchange of trade on the part of Eastern and Western print- 
ers with Atlanta's stores and factories. . . . The vital point is : 
If Atlanta business men have all their printing done in Atlanta 
500 more workmen would be needed by local printing plants to 
turn out the work ; 500 extra employees in the printing trades 
would spend their wages of $400,000 with Atlanta firms." 

Criticize. 

36. 5. If the United States should abandon the policy of 
protection, how would real wages be affected ? 

36. 6. "The principle of protection is to build up our home 
industries by manufacturing our own products. This gives 
our people employment, keeps the money in the country, and 
makes this country an independent and self-reliant nation." 

73 



74 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

Wherein, if at all, are these statements inaccurate or mis- 
leading? Wherein, if at all, correct? 

36. 7. "The great advantage of foreign trade is in fur- 
nishing a market for our surplus products which would other- 
wise go to waste." 

Criticize. 

36. 8. "If it costs 10 cents to produce a razor in Germany 
and 20 cents in the United States, it will require 100 per cent 
duty to equalize the conditions in the two countries. . . . 
And so far as I am concerned, ... if it was necessary to 
equalize the conditions to give the American producer a fair 
chance for competition, I would vote for 300 per cent as cheer- 
fully as I would for 50 per cent." 

Is this position a reasonable one ? 

36. 9. What is to be said for and what against the policy 
of imposing duties (a) just sufficient to equalize differences 
in labor expense between the United States and foreign coun- 
tries? (b) more than sufficient to equalize these differences? 
(c) less than sufficient? 

36. 10. For what group of laborers, if any, can it be main- 
tained that (a) protective duties tend to make their real wages 
lower ? (b) protective duties tend to keep their real wages high ? 
(c) protective duties tend to make their real wages higher? 

36. 11. Under what circumstances may the imposition of 
a protective duty result in raising the price of the dutiable 
article (a) by the amount of the duty? (b) by less than the 
amount of the duty? Under what circumstances, if any, may 
it leave the price undisturbed ? 

36. 12. Can a customs duty be highly protective to in- 
dustry and at the same time highly productive of govern- 
ment revenue? 

36. 13. Is the tariff "the mother of trusts"? 

36. 14. Does protection necessitate the imposition of cus- 
toms duties? Does free trade imply a total absence of cus- 
toms duties? What is meant by "a tariff for revenue only"? 



PROTECTION AND FREE TRADE. SOME ARGU- 
MENTS FOR PROTECTION 

37. 1. "Protective duties, by their effects on general 
money incomes, may bring more advantageous terms of in- 
ternational exchange." How? 

37. 2. What is the principle of protection to young in- 
dustries? What economic conditions warrant such protec- 
tion? What is the present importance of the principle in the 
United States? 

37. 3. What is the case for and against direct ship sub- 
sidies in the United States? 

37. 4. On what grounds has diversification of industry 
been considered politically and socially desirable? May pro- 
tective tariffs be important agencies for promoting such diversi- 
fication ? 

37. 5. What special arguments are there for and against a 
policy of protection for England to-day ? 

37. 6. How do you explain the trend of tariff policy since 
1870? 

37. 7. What has been the effect of the protective tariff 
in the United States since the Civil War upon (a) the course 
of industry? (b) government finance? (c) the prosperity of the 
country ? 

37. 8. What difficulties are involved in reducing or abolish- 
ing protective duties ? 

37. 9. In what way does the protective tariff figure in 
American political life? In what respects is its influence ob- 
jectionable ? wholesome ? 



75 



INTEREST ON CAPITAL USED IN PRODUCTION. 
THE CONDITIONS OF DEMAND 

38. 1. Contrast the interpretations given to (a) "distribu- 
tion," {b) " money," (c) "capital," (d) "interest," by (1) busi- 
ness men and (2) economists. 

38. 2. How far, if at all, is the income derived from the 
following to be called interest : an apartment block ; a pawn- 
broker's loan; a United States 2-per-cent bond; a Pennsyl- 
vania Railroad bond ; a piano ; an automobile truck ? 

38. 3. Where, in the financial columns of a current news- 
paper, is the prevailing rate of interest in the economic sense 
to be found? 

38. 4. Would doubling the supply of money lower the 
rate of interest? Would it lower the rate of bank discount? 

38. 5. Might interest arise if there were no money? if 
there were no capital ? 

38. 6. "Production with capital has been aptly described 
... as indirect or roundabout production." Explain. 

38. 7. "The laborers as a whole produce more than they 
receive." Do you agree? If so, does the statement neces- 
sarily imply social injustice? 

38. 8. In what sense is capital productive? Are idle 
owners of capital productive? 

38. 9. How should you expect the demand for capital to 
be affected by (a) the discovery of a large supply of cheap 
fuel? (b) a rigid restriction of immigration, e.g. by a literacy 
test? (c) the general European war? 

38. 10. What is meant by "the marginal productivity of 
capital" ? 

38. 11. Is there a general tendency to diminishing returns 
from successive doses of capital ? 

77 



INTEREST. THE EQUILIBRIUM OF DEMAND AND 

SUPPLY 

39. 1. Enumerate the motives which impel saving. 

39. 2. Under what circumstances are present goods valued 
more highly than future goods of like kind ? valued less highly ? 

39. 3. What determines how much more highly the present 
goods will ordinarily be valued? Would the " premium" on 
present goods be large or small in the following cases : a miser ; 
a savage; a millionaire; a spendthrift; a Mexican business 
man; a day laborer with a large family? 

39. 4. Draw up a "supply schedule" showing the amounts 
you would save at various rates of interest (a) with your present 
income ; (b) with an income of $25,000 a year. Draw the cor- 
responding supply curve. 

39.5. Who are " spontaneous savers"? Who save the 
"marginal savings"? 

39. 6. "Interest is the price paid for the use of savings." 
Explain diagrammatically the determination of this price. 

39. 7. Illustrate by diagram: (a) "negative interest"; 
(b) "extra-marginal savings"; (c) "savers' surplus"; (d) how 
a drop in the rate of interest affects savings. 

39. 8. How much has the rate of interest fluctuated since 
the Industrial Revolution? Why has it not fluctuated more? 
What is the probable future course of the rate of interest? 



70 



INTEREST {Further Considered) 

40. 1. What are the sources of the demand for savings? 
What is their relative importance ? 

40. 2. How, if at all, would the following tend to affect 
the demand for savings, the supply of savings, and the rate of 
interest: (a) an increasing supply of money; (b) increasing 
extravagance in private life; (c) a general European war; 
(d) equalization of money incomes? 

40.3. Are durable consumers' goods capital, — always? 
ever? Does the demand for them constitute a demand for 
savings? Does the repair and replacement of them? 

40. 4. Enumerate : (a) the factors which make the nominal 
rate of interest differ from the true rate ; (b) the factors which 
make the true rate different at different times ; (c) the factors 
which make the true rate different in different countries at the 
same time. 

40. 5. "I am willing to concede that interest ought to be 
paid to a man who saves out of a small income by self-denial, 
but I have no patience with the paying of interest to a capitalist 
whose accumulations have cost him no sacrifice." (T.) 

Do you agree ? Can a distinction between the two be prac- 
ticably made ? 

40. 6. What is to be said for and against (a) the prohibition 
of the taking of interest? (b) legal limitations on the rate of 
interest ? 



8i 



OVERPRODUCTION AND OVERINVESTMENT 

41. 1. "Overproduction may mean various things." What 
things ? 

41.2. Should "accumulation and investment go on by 
leaps and bounds," how would the following be affected : (a) pur- 
chases of plant and machinery; (b) luxurious expenditure; 
(c) prices of consumers' goods ; (d) the return on capital ? 

41. 3. How does overinvestment in particular industries 
bring its own remedy? How does a tendency toward over- 
accumulation ? 

41. 4. What is Rodbertus' theory of crises ? 

41. 5. To what extent is saving and investment almost 
automatic? What are the resultant dangers? How are these 
to be avoided ? 

41. 6. What are the characteristics of industries which 
are most liable to overproduction ? 



8.3 



RENT, AGRICULTURE, LAND TENURE 

42. 1. Which of the following statements, if any, should 
you accept? 

(a) "Rent is the specific product of land." 

(b) "Rent is producers' surplus with special reference to 
land." 

(c) "Rent is the price paid for the use of a durable good." 

(d) "Rent is the value of the use of natural resources." 

42. 2. What is the distinction between "commercial rental" 
and "economic rent"? 

Under what circumstances, if any, will the commercial 
rental exceed the economic rent? the economic rent exceed the 
commercial rental? 

42. 3. Corn is produced on the hills of New Hampshire 
and the prairies of Iowa. What differences, if any, should 
you expect in the two places in (a) the price of corn of the same 
quality? (b) the cost of producing such corn? (c) the rents paid 
for the land employed in the cultivation of the corn ? 

42. 4. What differences between different plots of land are 
significant in the determination of economic rent ? 

42. 5. State the principle of diminishing returns. Does it 
apply to lands used for other purposes than agriculture ? 

42. 6. Suppose all the land of a country to be arranged in 
order of increasing fertility in concentric circles about a market. 
Suppose the differences in fertility to be offset exactly by the 
cost of transportation to the market. Would there be rent? 
If so, under what conditions ? If not, why not ? 

42. 7. Would there be economic rent (a) if there were no 
tendency toward diminishing returns? (b) if the government 
owned all the land? (c) if land were always utilized by the 



86 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

owners? (d) if the supply of better land were practically un- 
limited ? 

42. 8. Explain " margin of cultivation." Distinguish 

(a) the intensive and extensive margins ; (b) the point of dimin- 
ishing returns and the margin of cultivation. 

42. 9. How will the amount of labor and capital applied 
at the intensive margin and the kind of land cultivated at the 
extensive margin, be affected by (a) increasing population? 

(b) improvements in transportation? (c) the discovery of a 
cheap fertilizer? 

42. 10. Explain: intensive cultivation; extensive cultiva- 
tion ; predatory cultivation. 

Is extensive cultivation necessarily predatory? Is preda- 
tory cultivation necessarily wasteful? 

42. 11. What are the principal forms of land tenure? 
What are their comparative merits? 

42. 12. What considerations bear upon the proposal to 
confiscate for the benefit of the community (a) the economic 
rent of agricultural land? (b) future accretions of this rent? 



URBAN SITE RENT 

43. 1. What are the causes of differences in the advantages 
of different city sites for (a) retail trading? (b) wholesale trad- 
ing? (c) manufacturing? (d) residence purposes? 

43. 2. "Our prices are low because we do not have to pay 
high rent." "The prices of the commodities sold on the more 
expensive sites are not higher." Can you reconcile these two 
statements? If so, how? If not, which is correct, and 
why? 

43. 3. "The effect of high prices for land and high rents 
is apparent. Industries will be slow to locate in Pittsburgh 
if rents and prices of land are higher than in other cities. A 
higher rent or interest on higher-price of land bought for build- 
ing, will be a constant added charge on cost of operation. Con- 
sequently industries will tend to shun a city where this higher 
cost is incurred." 

Do you think this consequence will ensue ? 

43. 4. In the utilization of urban sites does the tendency 
to diminishing returns appear? Does the intensive margin 
appear? Does the extensive margin? 

43. 5. To what extent is the return upon the following 
rent, to what extent interest: (a) "made land"; (b) residence 
sites greatly improved by a real estate development company; 
(c) a permanent drainage system on a farm ; (d) a golf links ? 

43.6. How far is "ground rent" identical with economic 
rent? 

43. 7. An enterprising merchant takes a fifty-year lease 
at a moderate rental on an urban site in a district not largely 
devoted to retailing, believing it can be made an important 
retail center. He builds a large store, advertises assiduously, 
and attracts a large and highly profitable custom. Other 

87 



88 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

dealers are attracted to the district, and rents and land values 
rise greatly. 

Has the economic rent increased (a) on his site? (b) on 
neighboring sites? In each case is the increase in land values 
earned or unearned ? If earned, by whom ? 



RENT (Concluded) 

4:4:. 1. What different elements of cost must be covered by 
the returns from mines ? 

44. 2. How does the tendency toward diminishing returns 
appear in mining ? 

44. 3. To what extent are mining royalties economic rent? 

44. 4. The annual rental of a piece of farm land is $250. 
Taxes on the piece amount to $75 yearly. If the current rate 
of interest on investments of the same security is 5 per cent, 
what is the value of the piece ? 

How and why might the value be affected by the proximity 
of a rapidly growing city? 

44. 5. The rentals from a New York office building amount 
to $50,000 a year. The building is now worth $200,000. To 
provide for insurance, depreciation, taxes, and such fixed items, 
$10,000 is required annually. What is the value of the land 
if the current rate of interest upon investments of equal security 
is 5 per cent? 4 per cent? 6 per cent? 

44. 6. How should you expect a permanent fall in the 
interest rate ultimately to affect (a) the value of an urban site ? 
(b) the rentals of an office building on the site? (c) the value of 
the building? 

44. 7. What is meant by the "unearned increment"? 
Why may its appropriation by the state be urged more strongly 
in the case of urban land than in the case of agricultural land ? 

44. 8. In the case of urban sites, what are the arguments 
for and against state appropriation of (a) all economic rent? 
(b) all future increases of economic rent? (c) part of future in- 
creases of economic rent ? 

44.9. " Increment taxes levied on capital value tend to 
defeat themselves." Explain. What is the best mode of levy- 
ing such taxes ? 

89 



MONOPOLY GAINS 

45. 1. Wherein are land rents and monopoly gains alike? 
wherein different? 

45. 2. Make a classification of monopolies, giving illustra- 
tions of each variety. 

45.3. What is a "public service industry"? For what 
reasons is monopoly in such industries virtually inevitable? 

45. 4. The Welsbach burner was, through a patent, a 
source of large monopoly gains. Were these gains socially 
justifiable? 

Should you say the same of enhanced profits received by a 
public service company as a result of the growth of the com- 
munity ? 

45. 5. Indicate some of the considerations involved in 
determining the fair selling value of a public service property. 

45. 6. " Vested interests present questions of the same sort 
in the case of monopolies as in the case of land." What are 
these questions? 



91 



THE NATURE AND DEFINITION OF CAPITAL 

46. 1. "The income from concrete instruments of produc- 
tion may be regarded as 'rent' or as 'interest,' according to 
the point of view." Explain. 

46. 2. In what different ways may the amount of capital 
be measured? 

46. 3. From what different viewpoints have the distinc- 
tions between interest, rent, and monopoly gains been discarded ? 

46. 4. On what grounds does the retention of the distinction 
between land and capital seem advisable ? 



93 



DIFFERENCES OF WAGES. SOCIAL STRATIFICATION 

47. 1. Enumerate the causes which give rise to " equalizing 
differences" in wages. 

47.2. Define "real differences" of wages. What are the 
causes of such differences? Are they persistent? 

47. 3. Distinguish the two ways in which expense of train- 
ing affects wages. 

47. 4. Which should you expect to be the more highly paid, 
and why : (a) sl street car conductor or a motorman ; (b) a sur- 
face car motorman or a subway motorman; (c) a day school 
teacher or a boarding school teacher ; (d) a trained nurse or a 
stenographer ; (e) a steeple jack or a house painter ; (/) a cot- 
ton factory operative or a department store clerk? 

47. 5. To what is social stratification due ? How far do 
existing social strata reflect differences in inborn ability? 

47. 6. What is meant by mobility of labor ? What forces 
promote, what forces restrict the mobility of labor? 

47. 7. How are wages in the lowest group affected by 
(a) unrestricted immigration? (b) free public school education? 
(c) immobility of labor ? 

47. 8. What differences of wages would persist if labor were 
perfectly mobile ? Is perfect mobility of labor desirable ? 

47. 9. Are the differences between men's wages and women's 
wages "equalizing" or "real"? Are these differences remov- 
able? socially objectionable? 

47. 10. Is the employment of women in gainful occupations 
advantageous to society ? 



95 



WAGES AND VALUE 

48. 1. Do "expenses of production" now measure "cost 
of production"? Why or why not? Would the situation be 
different if there were perfect mobility of labor ? 

48. 2. "Labor of any kind has a derived utility." Explain. 

48. 3. What is meant by the marginal efficiency of a group 
of laborers ? How is it related to the rates of wages received by 
the group? 

48. 4. How does immigration from Europe to the United 
States tend to affect (a) the marginal productivity of labor in 
the United States? (b) the productivity of the world's labor 
supply ? 

48. 5. Under what circumstances will the expenses of pro- 
duction determine the value of the product? Under what 
circumstances will the value of the product determine the ex- 
penses of production ? 

48. 6. "The exchanges between different countries are 
analogous to the exchanges between non-competing groups 
within a country." Explain. 



97 



BUSINESS PROFITS 

49. 1. To what extent, if at all, do the following receive 
business profits: a dentist; a popcorn vendor; a real estate 
speculator; a successful inventor; a salaried manager; a 
consulting engineer ; a holder of a railroad bond ; an idle owner 
of a share of stock ? 

49. 2. A business firm is made up of three partners, A and 
B, active partners, and C, an inactive (or silent) partner. The 
firm has $150,000 capital contributed in equal shares by the 
three partners. Its articles of agreement provide that the net 
earnings shall be divided as follows : first, a dividend of 6 per 
cent on the capital ; second, if net earnings permit, a salary of 
$4000 to each of the active partners ; lastly, any remainder to 
be distributed as further dividend on the capital. The firm's 
net earnings in 1908 were $23,000. What were the "business 
profits" of the firm? 

49. 3. Distinguish the various kinds of risks assumed by 
business men. Are business profits essentially a reward for 
the assumption of risk? 

What risks, if any, are taken by laborers? Do they get 
business profits? 

49. 4. To what extent do the following determine the suc- 
cess of business men : (a) chance ; (b) education ; (c) exceptional 
native ability; (d) mechanical talent; (e) " capital and con- 
nection"? 

49. 5. What are the motives which impel business activity? 
What qualities are requisite for success ? 

49. 6. How would the following be affected if capable 
business men were much more plentiful than they are : (a) the 
social income; (b) wages of laborers; (c) business profits; 
(d) social stratification? 

49. 7. Should you expect business profits to constitute an 
increasing or a decreasing proportion of the total social income ? 

99 



BUSINESS PROFITS {Continued) 

50. 1. Do business profits consist in whole or in part of 
interest? rent? wages? 

In what sense is the business man properly termed the 
"residual claimant" in the distribution of wealth? 

50. 2. In what respects are rent and business profits. alike? 
In what respects different ? 

If all men were equal in ability, and opportunities were the 
same for all, would there be business profits ? 

50. 3. "A capable business man who happens to own an 
advantageous site gets two sorts of rent." Explain. 

What should you expect to be the result if the same form of 
taxation were applied to both ? 

50.4. Is the representative firm necessarily a new firm? 
an old firm? a large firm? a small firm? Is it the average 
firm? 

Define "representative firm." 

50. 5. If business profits rise, how will the interest rate be 
affected? If the rate of interest rises, how will business profits 
be affected ? 

50. 6. To what extent in actual business are business profits 
connected with (a) sl large command of capital? (b) illegitimate 
business practices? 

50. 7. What determines whether business profits are legit- 
imate or illegitimate? What forces are necessary to restrict 
business profits within legitimate limits ? 



GENERAL WAGES 

51. 1. Compare the effects upon wages of extensive saving 
and lavish expenditure. When lavish expenditures are sud- 
denly curtailed and the savings invested, what laborers, if any, 
are injured? benefited? 

51. 2. Can saving be carried to excess? If not, why not? 
If so, what conditions would disclose the excess? 

51. 3. Are the laborers in the building trades of a city 
benefited by (a) a great conflagration in the city ? (b) the regular 
occurrence of small fires? 

How, if at all, are the effects different for the laboring class 
as a whole ? 

51.4. "'My lord,' said the shipbuilder to Lord Dun- 
donald, 'we live by repairing ships, as well as by building 
them, and the worm is our best friend. Rather than use 
your preparation [to protect the bottoms of ships of war], I 
would cover ships' bottoms with honey to attract worms.'" 

What have you to say of the shipbuilder's position ? 

51. 5. What is the immediate effect, what the ultimate 
effect, of the introduction of labor-saving appliances (a) upon 
the laborers in the industry directly concerned? (b) upon 
laborers in other industries? 

51. 6. "The inevitable attitude of the hired workman is to 
favor arrangements that seem to make work and to oppose those 
that seem to lessen work." Why? Why should this attitude 
be thought "inevitable"? 

51.7. What is meant by (a) "the specific product of 
labor"? (b) "the marginal product of labor"? (c) "the dis- 
counted marginal product of labor"? 

51.8. "Increased efficiency increases the supply of labor 
and thus tends to lower wages under a demand and supply 

103 



104 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

doctrine." "Increased efficiency increases the marginal prod- 
uctivity of labor and thus causes wages to rise." Which is 
correct and why? (T.) 

51. 9. To what cause or causes should you ascribe the high 
level of real wages in the United States ? 

51. 10. "With the increasing complexity of production 
interest tends to be a larger part, wages a smaller part, of the 
total income of society." Why? Does it follow that wage 
rates become lower and interest rates higher ? 

51. 11. In what direction and by what processes should 
you expect general wages in the United States to be affected by 
(a) increasing willingness to save? (b) increasing ability among 
business men? (c) an extension of industrial education? (d) the 
adoption of a literacy test for immigrants ? (e) increasing limita- 
tion of output by trade- unions ? (/) adoption of equal suffrage? 

51. 12. "Economically it is for the interest of every class 
of producers to see the efficiency of other classes of producers 
increase." Why? (T.) 

51. 13. Enumerate the most effective means by which 
general wages might be raised. 



POPULATION 

52. 1. Under what circumstances, if any, might the supply 
of labor increase, population remaining the same ? 

52. 2. Is the supply of labor elastic, i.e. does it respond to 
increases and decreases in demand (a) immediately? (b) in 
the long run ? 

Does an increase of wage rates ever cause (a) an increased 
willingness to work? (b) a decreased willingness to work? 

52. 3. What did Malthus mean by the "tendency" of 
population to outstrip subsistence? Does this tendency exist 
to-day in the United States? 

52.4. What is meant by "preventive check"? "positive 
check"? "birth rate"? "death rate"? How, if at all, are 
these checks and rates connected? 

52. 5. Is the same standard of living necessarily main- 
tained by two men receiving equal wages? by two men ex- 
pending equal amounts? Would your answer differ if one 
man supports a family, and the other does not? 

Define "standard of living." 

52. 6. How, if at all, are standards of living affected by 
wages? wages by standards of living? 



105 



POPULATION (Concluded) 

53. 1. What is the connection between (a) the standard of 
living and birth rates ? (b) birth rates and the supply of labor ? 

(c) the labor supply and the marginal productivity of labor? 

(d) the marginal productivity of labor and wages ? 

53. 2. "I cannot understand the stress laid by economists 
on the necessity of checking the growth of population. Every 
person born into the world brings with him not only a need 
for goods, but also the power to produce these goods." Com- 
ment. (T.) 

53. 3. What is " over-population " ? " under-population " ? 

53. 4. How is the general decline in the birth rate to be 
explained? the general decline in the death rate? Are the 
two equally signs of social progress ? 

53.5. 





Country 


Birth Rate 


Death Rate 


A . 




35 


25 


B . 




40 


35 


C . 




18 


19 


D . 




25 


30 



What inferences as to social conditions in the various coun- 
tries can you draw from the above statistics? Would your 
answer differ if you knew that many inhabitants from D had 
been emigrating to A ? 

53. 6. Of recent years deaths in France have been as 
numerous as births. Is this socially undesirable? 

107 



INEQUALITY AND ITS CAUSES 

54. 1. On what different bases has the distribution of 
property and income been estimated? Can you suggest any 
not mentioned in the text? 

54. 2. "The poorest class is the most numerous." Does 
the evidence support this statement? 

54. 3. "The rich are becoming richer and the poor poorer. " 
Is this true? 

54. 4. How far, if at all, are existing inequalities of wealth 
and income attributable (a) to inborn differences ? (b) to social 
institutions ? 

54. 5. Upon what grounds, if any, are the following to be 
condemned or justified : (a) the right of inheritance ; (b) the 
institution of private property ; (c) the leisure class ? 

54. 6. What has been meant by "a natural right"? What 
is the foundation for individual rights? 

54.7. What are "vested interests"? When, if at all, 
should they be respected? 

54. 8. If the competitive system is retained, is inequality 
likely to increase? to decrease? 



109 



TRADE-UNIONS 

55. 1. Why is trade-unionism a comparatively recent 
movement? Are the conditions which have fostered it likely 
to become less or more pronounced ? 

55.2. Are the interests of " labor" and "capital" funda- 
mentally opposed? 

55. 3. In what respects is the single laborer at a disadvan- 
tage in bargaining with an employer? What advantages in 
bargaining accrue to the laborer through collective action? 

{155>4. Why do trade-unions flourish in some industries 
and not in others? Is their absence in a particular industry 
evidence that collective bargaining is undesirable in that in- 
dustry ? 

55. 5. To what extent and by what means can trade-unions 
influence (a) the wages paid in a given occupation? (b) the 
general level of wages? 

55. 6. Give the arguments (a) from the viewpoint of the 
trade-unionist, (b) from the viewpoint of the economist, for and 
against 

(1) the closed shop ; 

(2) the open shop ; 

(3) the closed union ; 

(4) the open union ; 

(5) labor-saving appliances ; 

(6) limitation of output ; 

(7) piece-work ; 

(8) a standard rate of wages ; 

(9) semi-military discipline by employers ; 

(10) the "scab"; 

(11) the strike; 

(12) the lockout ; 



112 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

(13) the boycott; 

(14) the black-list. 

55. 7. What situation with respect to the closed union 
and closed shop is socially most desirable? 

55. 8. Is the employer justified in insisting that in labor 
matters he will deal with no one not in his employ? 

55.9. Should you account productive laborers: (a) a 
trade-union organizer; (b) a ''walking delegate"; (c) a strike 
agitator ; (d) a strike breaker ? 

55. 10. Is destruction of property ever justifiable in a 
labor dispute? Is intimidation? 

55. 11. Are there industries in which the strike should not 
be permitted ? 



LABOR LEGISLATION 

56. 1. Why should women and children seek factory em- 
ployment? What consequences flow from such employment, 
for good? for evil? 

56. 2. Enumerate the principal subjects of labor legislation. 

56. 3. Is labor legislation needed in industries where trade- 
unions are already strong ? Is there anything that may be ac- 
complished by labor legislation that could not be accomplished 
by trade-unions? 

56.(1/ Why limit by statute the length of the working day 
(a) for women? (b) for children? (c) for men? 

56. 5. Would a universal eight-hour day result in lower 
general wages? If not, why not? If so, are there offsetting 
gains ? 

56. 6. Is a man justified in protesting against a limitation 
of the working day on the ground that he has a right to work as 
long as he wishes ? 

56. 7. What conditions give rise to a demand for minimum 
wage legislation? What results can be obtained by such 
legislation ? 

56. 8. Explain wherein the problems would be different in 
fixing minimum wages for common unskilled labor, for various 
grades of skilled labor, and for women. 

56. 9/ What is to be said for and against a law requiring 
that everyone who works is to receive at least a " living wage"? 

56. 10. What forces have been instrumental in bringing 
about labor legislation? 

56. 11. Why has the United States been backward in labor 
legislation? Wherein are other countries in advance of the 
United States in this respect? 

i 113 



114 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

56. 12. Is labor legislation evidence that unrestricted com- 
petition cannot be relied on to secure the highest social well- 
being ? 

Is there any distinction between restricting competition 
and elevating the plane of competition? 



SOME AGENCIES FOR INDUSTRIAL PEACE 

57. 1. What different arrangements for profit sharing have 
been employed? 

57. 2. What are the aims of profit sharing? To what 
extent and for what reasons has it accomplished or failed to 
accomplish these aims? What is the prospect of its extensive 
adoption ? 

57. 3. What conditions are favorable, what conditions ad- 
verse, to the success of profit sharing ? 

57.4. What are the principal types of " welfare arrange- 
ments" in industrial establishments? Why have they been 
introduced ? What do they promise ? 

57.5. Explain the " sliding scale." Under what circum- 
stances may it be applied? What are its elements of strength 
and weakness? 

57. 6. In what various forms may arbitration be applied 
in industrial disputes? What are the advantages and dis- 
advantages of each? 

57. 7. Distinguish arbitration and conciliation. Under 
what conditions is each peculiarly applicable? 

57. 8. " Compulsory arbitration . . . may be the enter- 
ing wedge to socialism." Under what circumstances, if at all, 
and why ? 

57. 9. Is compulsory arbitration in public service indus- 
tries desirable? Is it socialistic? 

57. 10. What advantages to employers, employees, and 
society at large are offered by (a) profit sharing? (b) "gain 
sharing"? (c) "welfare arrangements"? (d) the sliding scale? 
(e) voluntary arbitration ? (/) compulsory arbitration ? 

What is the attitude of trade-unions toward each? 

ii5 



WORKMEN'S INSURANCE. POOR LAWS 

58. 1 . What is the nature of insurance ? 

To what extent does insurance tend to prevent the occur- 
rence of the event insured against? May it ever increase the 
probability of such occurrence? 

58. 2. What are the main causes of irregularity in earn- 
ings? What is their relative importance? 

58. 3. If workmen universally insisted on higher rates of 
pay in hazardous employments, would there be occasion for 
compulsory insurance against accidents? 

58. 4. What are the chief methods of compensating work- 
men for industrial accidents? 

Upon whom does the burden of compensation ultimately 
fall? Upon whom should it fall? Are insurance expenses 
an element in cost of production? 

58. 5. Is insurance against sickness as important as in- 
surance against accidents? as feasible? What has been the 
experience with it? 

58. 6. What are the causes of unemployment ? How far 
is it true that unemployment " brings its own remedy"? 

58. 7. " Unemployment, though it tends to correct itself, 
is a continuing phenomenon." Explain. 

What methods of provision for it are in use? What diffi- 
culties do they encounter? 

58. 8. What are the different forms of provision for old 
age? What are the advantages and disadvantages of each? 

58.9. Explain: "indoor relief"; "outdoor relief." Com- 
pare their advantages. 

What are the essentials of a satisfactory system of poor 
relief ? 

117 



Il8 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

58. 10. With what force can it be argued that the follow- 
ing are deterrents to thrift : (a) industrial accident compensa- 
tion; (b) compulsory sickness insurance; (c) unemployment 
insurance; (d) old age pensions; (e) poor relief? 



COOPERATION 

59. 1. What is the essence of cooperation? In what lines 
of economic activity has it been tried ? 

59. 2. What form of cooperation is most characteristic of 
England? of Germany? In which country has there been less 
development and why? 

59. 3. What has been the success of, what is the economic 
significance of, cooperation (a) in retail trading by the well-to- 
do? (b) in retail trading by workingmen? (c) in agricultural 
operations? (d) in banking? 

59. 4. What are the causes of the success of distributive 
cooperation in England? What are the reasons for its failure 
to develop in the United States? 

59. 5. What are the different forms of credit cooperation? 
Under what conditions does the need for it arise? What con- 
ditions are essential to its success? 

59. 6. What is the record of "cooperation in production"? 
What peculiar obstacles does it encounter ? What of its future ? 



119 



RAILWAY PROBLEMS 

60. 1. In order to be to the public interest must a railroad 
secure profits (a) from its passenger traffic ? (b) from its freight 
traffic? (c) from its mail traffic? (d) from the beginning of its 
operation ? 

60. 2. What are the important economic characteristics of 
railways ? 

60. 3. In what ways does the tendency to increasing returns 
present itself in railway operation ? 

60. 4. How does the necessity of maintaining a large plant 
in railroading affect (a) the regularity of profits ? (b) the tendency 
toward combination? (c) costs of transportation with varying 
volume of traffic? 

60. 5. In what ways do railroad operations illustrate 
production at joint cost? What important consequences flow 
from this characteristic of railways ? 

60. 6. In fixing railroad rates, to what extent should the 
following be considered : (a) weight of commodity ; (b) distance 
transported ; (c) separable expense of transportation ; (d) value 
of commodity; (e) increase in value due to "place utility"; 
(/) dividends on railroad stock? 

60. 7. Why are railroad rates between two points frequently 
different according to the direction the commodities move? 

60. 8. Should you expect railroad rates on copper ore to 
be higher or lower per ton than on coal ? 

Why does an express company charge no more for carrying 
twenty-five pounds of books than for carrying the same distance 
at the owner's risk twenty-five pounds of table silver? 

60. 9. Rates on California lemons are made so low that 
they can compete with lemons from Sicily. Lumber from 
Oregon competes in Boston with lumber from Maine. Does 



122 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

the practice of quoting such rates benefit (a) the fruit-grower 
and the lumberman ? (b) the consumer? (c) the railroad? (O.) 

60. 10. What is meant by "charging what the traffic will 
bear"? To what extent, and on what grounds, is it justifiable? 

60. 11. To which point in each of the following cases should 
you expect the railroad rate from New York City to be lower : 
(a) San Francisco or Salt Lake City; (b) Chicago or a small 
town twenty miles east ; (c) Chicago or New Orleans ; (d) Buf- 
falo, N.Y., or Burlington, Vt? 

60. 12. What is the standard of reasonableness (a) for the 
general level of railway rates? (b) for rates on particular com- 
modities ? 

60. 13. Does an effective public prohibition of discrimina- 
tion in rates and service between large and small shippers seem 
economically justifiable ? 

60.14. Explain: "rebates"; "railway pools." Why have 
they been prohibited? Under what circumstances, if any, 
should either be permitted? 



RAILWAY PROBLEMS (Continued) 

61. 1. " Railways have been the most important agents 
in increasing the disparities of wealth in modern times." In 
what ways? 

61. 2. When may profits from railroading be said to be 
unearned? Is state appropriation of such unearned profits 
desirable? feasible? 

61. 3. If a railroad company regularly earns 5 per cent 
on all its outstanding stock and bonds, can it be said to be 
overcapitalized? What constitutes overcapitalization? Can 
it be prevented by law? 

61. 4. What relation has overcapitalization to (a) the 
profits of the company concerned? (b) the rates charged by 
the company concerned? (c) concentration of railroad owner- 
ship? 

61. 5. Has private ownership of the railroads justified 
itself in the United States? Is its continuance imperative? 

61. 6. To what extent is railway business conducted under 
monopoly conditions? Is competition tending to prevail less 
or more widely ? 

61. 7. "To charge what the traffic will bear under the 
principle of joint cost is for the public interest; to charge 
what it will bear under the principle of monopoly is against 
the public interest." Explain. 

61. 8. What is the case for and against government owner- 
ship of railroads in the United States, with respect to (a) rates ? 
(b) discrimination? (c) finance? 



123 



PUBLIC OWNERSHIP AND PUBLIC CONTROL 

62. 1. Enumerate and classify the principal public service 
industries of the present day. 

62. 2. Are the following public service industries : (a) sup- 
plying milk within a city ; (b) the maintenance of a municipal 
sewerage system; (c) jitney bus service; (d) the maintenance 
of emergency hospitals? 

62. 3. What are the essential characteristics of public 
service industries? 

62. 4. What different relationships as to ownership, man- 
agement, and regulation may exist between the government 
and public service industries? 

62. 5. What are the forces making for monopoly in the 
case of (a) the railroad ? (b) the telephone ? (c) the post office ? 

62. 6. For what reasons has private management been a 
necessary stage in the development of public service industries? 
In what industries is this stage past ? 

62. 7. On what terms should franchises be granted public 
service companies? 

62.8. If the public buys a "public utility" from private 
owners, what considerations should determine the terms of the 
purchase ? 

62. 9. What are the earmarks of an industry adapted for 
public management, (a) according to Jevons? (b) according to 
Professor Taussig ? 

What social and political conditions are conducive to suc- 
cessful public management of industries possessing these ear- 
marks ? 

62. 10. On what grounds, if any, may public ownership be 
called "socialistic"? "conservative"? 

125 



126 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

62. 11. What two types of commission have appeared in 
the American states to deal with public service industries? 
What is each capable of accomplishing? 

62. 12. Precisely what is meant by " publicity" as a means 
of regulating public service companies? In whose interests 
may publicity be required ? 

62. 13. Upon what points must public regulation focus? 

62. 14. What evils may result from unwise regulation of 
public service companies? 



COMBINATIONS AND TRUSTS 

63. 1. Describe briefly the various forms of industrial 
combination. Which now prevail, and why? 

63. 2. What has been the status of agreements in restraint 
of trade (a) under our common law ? (b) under the law of Con- 
tinental Europe? 

What important alterations have been made in the United 
States by statute? 

63. 3. What factors make for the success of an industrial 
combination? Would success prove it to be economically 
superior? socially desirable? 

63. 4. What forces tend to bring industrial monopoly ? 
What forces tend to re-establish competitive conditions where 
monopoly has for a time prevailed? 

63.5. What is " unfair competition"? "ruinous competi- 
tion"? "cutthroat competition"? "potential competition"? 
By what measures, if at all, may each be diminished? 

63. 6. If an industrial combination, selling its product 
at competitive prices, secures large profits through various 
economies, is the combination socially objectionable? 

63. 7. What influences may be expected to temper the 
policies of industrial combinations in the United States? 

63. 8. What important advantages for the community 
are claimed for industrial combination? To what extent 
have these been realized? 

63. 9. "The special question presented in this regard by 
the trust movement seems to be whether large-scale manage- 
ment adds something to the gains from large-scale production 
in the narrower sense. Here, too, it would appear at first sight 
that the matter may be allowed to settle itself. Let them fight 

127 



128 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

it out and let that form of organization survive which does the 
work most cheaply." 

Explain : (a) the distinction between large-scale management 
and large-scale production; (b) what grounds there are for 
saying that they should be allowed to fight it out, what grounds 
for saying that they should not; (c) what policies have been 
pursued in the United States on this subject ; (d) what legisla- 
tion has recently been enacted. 

63. 10. What are the earmarks of effective industrial 
monopoly ? 

63. 11. Should you expect (1) the tendency toward com- 
bination, (2) the tendency toward monopoly, to be strengthened, 
or weakened by large increases (a) in the savings of the com- 
munity? {b) in general business ability? (c) in concentration of 
control of banking interests ? 



SOCIALISM 

64. 1. What changes, if any, does socialism contemplate 
in the following : 

(a) the organization of production ; 

(b) the medium of exchange ; 

(c) sources of individual income ; 

(d) the institution of private property ; 

(e) the leisure class ; 

(/) individual freedom of opportunity ; 

(g) political organization ; 

(h) the organization of the family ; 

(i) education; 

(j) prevailing religion ? 

64.2. " To-day all over the land masons, hod-carriers, 
carpenters, and so on are building palaces which other people 
are to live in. When socialism triumphs all this will be changed. 
The worker, no longer robbed of the fruits of his labor, will him- 
self occupy the palaces he builds, wear the broadcloth he makes, 
and eat the choice viands he produces. " 

Criticize. (T.) 

64. 3. Would there be saving in a socialist state? Would 
there be capital formation ? interest ? rent ? 

64. 4. Should you regard it as wise for a socialist state to 
charge identical prices for two articles produced with the same 
amount and quality of labor, and the same amount and quality 
of land, if one required an elaborate, expensive plant while the 
other required only a simple, inexpensive plant? if the produc- 
tive processes differed greatly in length ? 

64. 5. What business risks, if any, would be eliminated 
under socialism? What, if any, would remain? 

64. 6. In what sense, if any, can it be said that the follow- 

K 120 



130 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

ing are socialistic: (a) public ownership and management of 
gas works ; (b) public ownership and management of railroads ; 

(c) compulsory arbitration between employers and workmen; 

(d) minimum wage legislation; (e) unemployment insurance; 
(/) a billion-dollar trust; (g) the Single Tax? 

64. 7. Should you apply the term " socialistic " to proposals 
which, though urged by socialists, tend to prevent the coming 
of socialism? to proposals which tend toward socialism, though 
they are not directly urged by socialists ? 

64. 8. Upon what several principles might the wages of 
different sorts of workers be fixed under socialism? Which 
would be the most practicable? 

64. 9. In a socialist community should you expect to find 
equalizing differences in wages? real differences? What prin- 
ciples of justice would be applicable in either case ? 



SOCIALISM {Continued) 

65. 1. Enumerate the important difficulties which socialism 
would encounter. Number them in what seems to you to be 
the order of their importance. 

65. 2. Would the pressure of population be greater or less 
under socialism? What bearing would this have upon the 
policy and permanence of the socialist state? 

65. 3. What grounds are there for saying that under a 
socialistic regime the efficiency of the rank and file of workers 
would be greater? less? 

65. 4. What is the outlook for effective leadership under 
socialism ? 

65. 5. Socialism is sometimes described as "against human 
nature.' ' To what aspects of human nature does this criticism 
refer ? Is the point well taken ? 

65. 6. Should the goal of economic progress be primarily 
a better distribution or a larger production? May either be 
safely neglected? Which is emphasized by socialism? 

Does a larger production tend to promote better distribu- 
tion? Does a better distribution tend to promote larger 
production ? 

65. 7. What are the prospects for the early adoption of 
socialism? for its ultimate adoption? 



131 



SOME PRINCIPLES UNDERLYING TAXATION 

66. 1. Classify the different sorts of payments to govern- 
ments. Of which variety is each of the following : (a) charges 
for marriage licenses; (b) water rates; (c) fares paid on a 
government railroad ; (d) duties imposed upon estates passing 
by bequest ; (e) assessments for sidewalks levied upon owners of 
abutting lots ? 

Define a "tax." 

66. 2. Define proportional, progressive, degressive, and 
regressive taxation, and illustrate each by hypothetical income 
tax rates. 

Is an import duty of 2ff per pound on sugar a proportional 
tax? 

66. 3. What are the different theories regarding the best 
mode of apportioning taxes ? 

To which sort of taxation (proportional, progressive, or 
regressive) does each of these theories lead? 

66.4. Distinguish "funded incomes" and "unfunded in- 
comes." What reasons can be urged for and against heavier 
taxation of funded incomes? 

66. 5. Should taxation be used as an instrument for (a) ap- 
propriating illegitimate incomes? (b) restricting undesirable 
business practices ? (c) absorbing monopoly profits ? (d) reducing 
inequalities of wealth? 

For what other objects may taxation be employed? 



133 



INCOME AND INHERITANCE TAXES 

67. 1. Compare inheritance taxes and income taxes with 
respect to (a) ease of collection, (b) advisability of progressive 
rates, (c) equality of burden upon persons in like circumstances, 
(d) fitness for frequent readjustment of rates. 

67. 2. Can one who opposes progressive taxation con- 
sistently support a progressive income tax? 

67. 3. Is it advisable to exempt the poorer classes (a) from 
all taxes? (b) from all direct taxes? (c) from taxes on incomes? 

67. 4. What are the two common methods of levying in- 
come taxes ? Wherein is each advantageous ? disadvantageous ? 

67. 5. "The principle of stoppage at the source is not con- 
sistent with progression." Explain. By what device is pro- 
gression in income taxes secured despite this fact ? 

67. 6. What is the history and present status of income 
taxes in the United States? 

67. 7. What are the principal features of the Federal in- 
come tax act of 1913 ? 



135 



TAXES ON LAND AND BUILDINGS 

68. 1. Trace the evolution of taxes upon real property. 
Why have they come to their present importance in financial 
legislation ? 

68. 2. Who bears the burden of a tax (a) on land apart 
from the improvements upon it? (b) on buildings per se? 

What underlying difference between land and buildings is 
responsible for the difference of incidence? How may the 
shifting take place? 

68. 3. Under what conditions is a tax on rented buildings 
borne by (a) the tenant? (6) the owner? (c) neither? 

68. 4. How far is it true that a tax upon land is a "burden- 
less tax"? Can the same be said of a tax upon real estate? 

68. 5. In what respects do different results follow according 
as real estate taxes are (a) imposed on owner or occupier? 
(b) assessed on rental or capital value ? 

68. 6. Are working men taxed by real estate taxes affecting 
their dwellings? 

What difference does it make whether they or their land- 
lords are assessed for such taxes ? 

68. 7. To what extent have taxes on real property been 
relegated to local governing bodies? What are the reasons for 
this policy ? Is it wise ? 



i37 



THE GENERAL PROPERTY TAX 

69. 1. Why was the general property tax a satisfactory 
tax under simple industrial conditions? Why has it become 
" hopelessly impracticable " ? 

69. 2. What results usually follow from attempts rigidly 
to enforce the general property tax? 

Explain and criticize the statement : "The general property 
tax works best where the letter of the law is disregarded." 

69. 3. Is a rate of $20 in the $1000 more burdensome when 
imposed upon stocks and bonds than when levied upon real 
estate? Why or why not? 

What peculiar importance is involved in the selection of the 
rate of taxation on stocks and bonds? 

69.4. What is "double taxation"? Under what cir- 
cumstances, if any, is it unobjectionable ? Why is the problem 
a serious one to-day in the United States? What solution can 
be suggested? 

69. 5. Is it expedient to exempt public securities from 
taxation ? 

69. 6. What changes have been suggested for improving 
American taxation of securities? What is to be said for and 
against each? 

69. 7. What would be the probable consequences of (a) a 
general tax on wages? (b) an all-embracing tax on property? 



139 



TAXES ON COMMODITIES 

70. 1. Distinguish "direct" and "indirect" taxes. 

70.2. What are the advantages of indirect taxes? Are 
there offsetting disadvantages? 

70. 3. To what extent and by what process is a tax shifted 
to consumers when levied upon a commodity produced (a) at 
constant cost? (b) at decreasing cost? (c) at increasing cost? 
(d) by a monopoly? 

70. 4. Distinguish excise taxes and customs duties. Is 
their operation proportional, progressive, or regressive? 

What are their relative merits for purposes of revenue? 
Should a large or a small list of articles be selected for either 
form of taxation? 

70.5. What are fiscal monopolies? Cite examples. Are 
they desirable sources of public revenue ? 



Printed in the United States of America. 



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*HE following pages contain advertisements of 
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Principles of Economics 



By F. W. TAUSSIG 

Henry Lee Professor of Economics in Harvard University 

Cloth, 8vo, 2 vols., each $2.00 
Volume I, 547 pages Volume II, 573 pages 

In this book Professor Taussig has stated the principles of Eco- 
nomics in such form that they shall be comprehensible to an edu- 
cated and intelligent person who has not before made any systematic 
study of the subject. He has stated the fundamental principles of 
the science with remarkable clarity and in a style which is in pleas- 
ing contrast to that employed in many similar, but distressingly un- 
interesting and technical, writings. The book deals chiefly with the 
industrial conditions of modern countries, of advanced civilization, 
and chiefly, of course, with those of the United States. Economic 
History and Economic Development are discussed only as they hap- 
pen to illustrate one or another of the problems of contemporary so- 
ciety. The unusually stimulating and comprehensive discussion of 
these problems serves to emphasize the underlying principles of eco- 
nomics and to impress upon the student the importance of the study 
of these principles. 

A remarkable tribute to the merit of this book is that while it was 
not intended primarily as a class text, it has been adopted for ex- 
clusive use as a text in many of the colleges and universities, both 
large and small. Experience has shown conclusively that the book's 
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of the subject has made it an especially suitable text for all colleges. 
For the smaller institutions, the book has the additional advantage 
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and the extended use of this work as a comprehensive, untechnical 
treatment of the subject, have led many eminent economists to re- 
gard it as the most notable contribution to the subject of economics 
since the time of John Stuart Mill. 



THE MACMILLAN COMPANY 

Publishers 64-66 Fifth Avenue New York 



Outlines of Economics 

By RICHARD T. ELY, Ph.D., LL.D. 

Professor of Political Economy in the University of Wisconsin. Revised 
and enlarged by the Author and Thomas S. Adams, Ph.D., Professor of 
Political Economy in the University of Wisconsin ; Max O. Lorenz, Ph.D., 
Assistant Professor of Political Economy in the University of Wisconsin; 
and Allyn A. Young, Ph.D., Professor of Economics in Leland Stanford 
Jr. University. 

Cloth, 8vo, $2.00 

The new edition of Professor Richard T. Ely's " Outlines of Eco- 
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The new edition is practically a new work, completely revised and 
rewritten and about twice the size of the old book. In this revision 
Professor Ely has had the assistance of Professors T. S. Adams and 
Max O. Lorenz of the University of Wisconsin, and Professor A. A. 
Young of Stanford University. All of these men are experts in vari- 
ous departments of economics. Professor Young is an expert on 
statistics and a mathematician, and has given especial attention to 
banking and insurance. Professor Adams has been employed as an 
expert in United States census work and also as an expert in taxation 
by the Wisconsin Taxation Commission. Professor Lorenz is Deputy 
Labor Commissioner of the State of Wisconsin, and a specialist in 
labor problems. 

In its present form, Ely's " Outlines of Economics " is, perhaps, 
the most comprehensive discussion of the whole subject of economics 
yet produced in America. It has often been remarked of the earlier 
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The new edition, with its fuller discussion of many subjects, is even 
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subjects as the railway problem, forestry, labor problems, and social- 
ism are dealt with fully. The book is also unique in the extent to 
which principle is illustrated with concrete applications. In this 
particular the book may not inaptly be compared to Adam Smith's 
"Wealth of Nations." 

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the most important American contributions to the science of eco- 
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but as a work for the general reader who wishes to familiarize him- 
self with the whole field of economic thought. 



THE MACMILLAN COMPANY 

Publishers 64-66 Fifth Avenue New York 



Elementary Principles of Economics 

By IRVING FISHER 

Professor of Political Economy, Yale University 
Cloth, i2tno, S3 1 P a g es > $2.00 



EXTRACTS FROM THE PREFACE 

Of the many possible methods of writing economic textbooks, there are 
three which follow well-defined, though widely different, orders of topics. 
These are the " historical," the " logical," and the " pedagogical." . . . 

The pedagogical begins with the student's existing experience, theories, 
and prejudices as to economic topics, and proceeds to mold them into a 
correct and self-consistent whole. The order of the first method, therefore, 
is from ancient to modern; that of the second, from simple to complex ; 
and that of the third, from familiar to unfamiliar. The third order is 
the one here adopted. That the proper method of studying geography is 
to begin with the locality where the pupil lives is now well recognized. 
Without such a beginning the effect on the student's mind may be like 
that betrayed by the schoolgirl, who, after a year's study in geography, 
was surprised to learn that her own playground was a part of the surface 
of the earth. . . . 

This book, therefore, aims to take due account of those ideas with 
which the student's mind is already furnished, and to build on and trans- 
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expenses and income, the fortunes of the rich. Moreover, these ideas are 
largely fallacious. Therefore, the subject of money is introduced early in 
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unfolded. For the same reason considerable attention is given to cash 
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nomics which underlie accounting in general. Every student at first is a 
natural " mercantilist," and every teacher has to cope eventually with the 
prejudices and misconceptions which result from this fact. Yet no text- 
book has apparently attempted to meet these difficulties at the point where 
they are first encountered, which is at the beginning. . , . 



THE MACMILLAN COMPANY 

Publishers 64-66 Fifth Avenue New York 



The Economics of Enterprise 

By HERBERT J. DAVENPORT , 

Professor of Economics in the University of Missouri 
i2mo. $2.23 



In this volume Professor Davenport presents the 
affirmative and constructive aspects of the positions 
established in his critical study, Value and Distribu- 
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the issues, the controversies and the conclusions which 
together sum up into the modern economics. As the 
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the enterpriser. A consistent acceptance of this com- 
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The book is to be used as the regular text in the 
author's elementary course in General Economics. It 
will, however, be found of decided interest to instruc- 
tors and advanced students, as well as to the more seri- 
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